Reportable  IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.864 OF 2005

Ultra Tech Cement Ltd. … Appellant (earlier Ultratech Cemco Ltd.)

Vs.

State of Maharashtra & Anr. … Respondents

J U G D M E N T  

R. V. Raveendran J.

The appellant  (the term ‘appellant’ refers to M/s Larsen & Toubro  

Ltd.  till  date  of  its  demerger  in  2004 and  thereafter  to  M/s.  Ultra  Tech  

Cement Ltd.) obtained a mining lease for limestone from the Government of  

Maharashtra, as per lease deed dated 12.2.1980. Under the terms of the said  

lease, the appellant as lessee was required to pay dead rent as per clause  

V(1) and (2), royalty in terms of clause V(3) and surface rent, water rate and  

cesses in terms of clauses V(4) of the lease deed. In response to a notice  

served by the Collector on the appellant demanding payment of surface rent  

(equal to non-agricultural assessment) and the Zilla Parishad Cess (for short

‘ZP Cess’) and Gram Panchayat Cess (for short ‘GP Cess’), the appellant  

informed the Collector by letter dated 3.1.1991, that it was not liable to pay  

the ZP cess and GP cess and that  those cesses may be deleted from the  

demand.  However by notice of demand dated (nil)  July 1991, revised by  

notice dated 28.1.1994, the Collector, Chandrapur, reiterated the demand for  

surface rent as also the ZP and GP cesses for the years 1987 to 1992, on the  

following ground:   

“The Government  of  Maharashtra  vide  its  letter  Industries  Energy and  Labour  Department  (IND)  No.TQCR-2176/45691/1172/IND-9  Bombay  dated 13.06.1978 and Director, Geology & Mining, Govt.of Maharashtra,  Nagpur  vide  letter  No.STC/295/39/2007  dated  09.06.1989  have  issued  instructions regarding fixation of surface rent on the lease area used for  mining  purpose.  As  per  these  directives  and Rule  27(1)(d)  of  Mineral  Concession Rules, 1960, the lessee is required to pay the surface rent at  such rate not exceeding the land revenue and the cesses assessable on the  land.  Since  the  mining  operation  is  the  use  of  land  other  than  the  Agriculture purpose,  the rate of non-agricultural assessment, together  with the cesses assessable on the land, are applicable for levying the  surface rent.”

(emphasis supplied)

2. The appellant was aggrieved by the demand in so far as it relates to  

ZP cess and GP cess. According to appellant section 151(1) of Maharashtra  

Zilla Parishads and Panchayat Samitis Act, 1961 (‘Zilla Parishad Act’ for  

short) exempted the lessees from the state government from payment of the  

ZP cess. The appellant also contended that it was not liable to pay the GP  

cess, as section 127 (1) of Bombay Gram Panchayats Act, 1958 (‘Panchayats  

Act’ for short) provides for levy of GP cess at the rate of one hundred paise  

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on every rupee payable to the state government as ordinary land revenues in  

the area within the jurisdiction of the Panchayat, and as the appellant was  

exempted from paying land revenue under section 64 of the Maharashtra  

Land  Revenue  Code,  1966  (‘Revenue  Code’  for  short)  read  with  clause  

VII(1)  of  the lease deed,  it  was  not  liable  to pay the GP cess  also.  The  

appellant admitted the liability to pay surface rent equal to non-agricultural  

assessment.

3.  On the other hand, the respondents contend that the demand for ZP  

cess and GP cess is authorized by Rule 27(1)(d) of the Mining Concession  

Rule, 1960 (‘MC Rules’ for short) read with clause V(4)  of the lease deed  

and the appellant is liable for the same. The submission of the respondents is  

that they have not made any demand for cess under the Zilla Parishads Act  

or Panchayats Act and that the demand for ZP cess and GP cess is as a part  

of the surface rent. According to the respondents, the reference to ZP cess  

and GP cess assessable on the land, in the lease deed is only for the purpose  

of arriving at the figure of surface rent. The respondents’ submission is that  

though  “cesses  per  se  could  not  have  been  levied  under  the  Mineral  

Concession Rules”, cesses assessable on the land has been demanded as a  

mode of calculating the charges for the surface area used by the lessee; and  

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so long as the amount charged does not exceed the land revenue plus ZP  

cess and GP cess assessable on the land, the lessees can have no grievance.  

4. On  the  rival  contentions  urged,  two  questions  arise  for  our  

consideration:  

(i) Whether the appellant is liable to pay ZP Cess?

(ii) Whether the appellant is liable to pay GP Cess?

Re: Question No.(i)

5. Rule  27  of  the  Mining  Concession  Rules,  1960  prescribes  the  

conditions subject to which a mining lease should be made. Clause (d) of  

sub-section (1) thereof is relevant and is extracted below :  

“27. Conditions – (1) Every mining lease shall be subject to the following  conditions – xxxx xxxx

(d) the lessee shall also pay, for the surface area used by him for the  purposes of mining operations, surface rent and water rate at such rate, not  exceeding the land revenue, and cesses assessable on the land, as may be  specified by the State Government in the lease.”    

(emphasis supplied)

Clause 4 of Part V of the lease deed reads thus:  

“The lessee/lessees 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/lessees under the authority of  those  presents  at  the  rate  of  Rs…and  Rs…respectively  per  annum per  hectare of the area so occupied or used and so in proportion for 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 land so used to us in original  

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condition.  Surface  rent  and  water  rate  shall  be  paid  as  hereinbefore  detailed in clause (2) provided that no such rent/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.  

1. Surface rent equal the non-agricultural assessment. 2. Water rates not exceeding the land revenue.

3. Cesses  assessable  on the  land (ZP and GP Cesses)  subject  to  the  revision of rates prescribed by government from time to time.”

(emphasis supplied)

A combined reading of Rule 27(1)(d) of the Rules and Clause V(4) of the  

lease deed,  makes it  clear  that  the lessee  under the mining lease deed is  

liable to pay, in addition to dead rent and royalty, the following amounts : (i)  

surface  rent  equivalent  to  non-agricultural  assessment;  (ii)  water  rate  not  

exceeding the land revenue and (iii) cesses assessable on the land specified  

by the state government in the lease, that is ZP cess and GP cess assessable   

on the land subject to revision of rates prescribed by government from time   

to time.  

6. What is significant to note is that the State Government has stipulated  

in the lease that the mining lessee shall pay ZP cess assessable on the land.  

It has not used the words ‘an amount equivalent to ZP cess that could be or  

may be assessed on the land.’  The word ‘assessable’  means  liable  to  be  

assessed. Therefore when Clause V(4) of the lease deed requires the lessee  

to pay ZP cess assessable on the land, it would mean that the mining lessee  

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would be liable to pay ZP cess if it is so due under the Maharashtra Zilla  

Parishads Act.  

7. Section 151(1) of the Zilla Parishad Act which is relevant is extracted  

below:  

“151. (1) – In the Vidarbha area of the State of Maharashtra, every malik- makhuza, raiyat malik and occupant and every raiyat,  other than a sub- tenant and lessee from the State Government shall be liable in respect  of the land held by him in the district to pay cess for the purpose of this  Act at the rate of twenty paise or at such increased rate not exceeding two   hundred  paise  as  may  be  determined  by  the  State  Government under  section 155 on every rupee of the land revenue or rent assessed or fixed on  such land or the lease money payable in respect thereof, whether or not  such land revenue or rent or lease money or any portion thereof has been  released, compounded for or redeemed.

[Note : the words in italics should be read as ‘at the rate of two hundred   paise or at such increased rate not exceeding seven hundred paise as may   be  determined by  the  concerned  Divisional  Commissioner”  after  amendment of section 151(1) by Maharashtra Act 1 of 1993]

(emphasis supplied)

It is evident from the said provision of the Zilla Parishad Act that a ‘lessee  

from the state government’ is not liable to pay ZP cess under section 151 (1)  

of the Zilla Parishads. The ZP cess can be levied only in terms of and under  

the Zilla Parishads Act and cannot be levied by the state government, under  

the  terms  of  a  contract.   Where  a  particular  cess  is  leviable  under  an  

enactment, and the contract says that the lessee is liable to pay such cess  

leviable under that enactment, but the enactment exempted a specified class  

of persons (to which the lessee belongs) from paying the said cess, the state  

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government cannot make the lessee liable to pay the said cess on the ground  

that  under  the contract  entered under a different  enactment,  the lessee  is  

liable to pay such cess. For example, if a Sales Tax Act exempts the sale of  

particular goods from tax, the seller of such goods cannot demand Sales Tax  

on the ground that the contract of sale provides that the buyer is liable to pay  

all taxes leviable under any enactment. It follows that if a lessee from the  

State  Government  is  exempted  from payment  of  ZP  cess  leviable  under  

section 151(1) of the Zilla Parishads Act, by section 151(1) itself, the State  

Government cannot ‘levy’ the said ZP cess under a contract entered in terms  

of the Mineral Concession Rules. For payment of a cess under a particular  

Act, liability under that Act is condition precedent. Therefore if ZP cess is  

not due or payable by a lessee under the ZP Act, the State cannot say that the  

amount  is  due  under  the  lease  deed  executed  in  terms  of  the  Mineral  

Concession Rules.

8. The effect of  clause V(4) of the lease deed providing that the mining  

lessee shall pay ‘ZP cess assessable on the land’ is this: if it is liable to be  

paid under the Zilla Parishads Act, that should be paid by the lessee and  

payment thereof is a term of the lease; and if the lessee is not liable to pay  

ZP cess in view of the exemption under the ZP Act, it is not payable.  The  

position would have been different if the lease deed had stipulated that the  

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lessee is liable to pay as consideration, in addition to other sums payable, a  

sum equivalent to ZP cess under Zilla Parishad Act, irrespective of whether  

the lessee is liable to pay such cess under the Zilla Parishads Act or not. If  

the lease deed had contained such a term, the lessee would have been liable  

to pay a sum equivalent to ZP cess, irrespective of his liability under the  

Zilla Parishads Act.

9. We may in contrast, refer to the term in the lease regarding payment  

of surface rent. The clause says what is payable is ‘surface rent equal the  

non-agricultural assessment’. The clause does not say that the lessee is liable  

to pay ‘non-agricultural assessment’ assessable on the land. Consequently,  

irrespective of whether non-agricultural assessment is leviable or not under  

the Maharashtra Land Revenue Code, 1966, the lessee shall be liable to pay  

an amount equivalent to non-agricultural assessment, as surface rent. What  

is  payable  under  the  contract  is  ‘surface  rent’  and  non-agricultural  

assessment is made only the basis for quantification of the surface rent. But  

the wording relating to payment of ZP cess and GP cess, are significantly  

different from the wording relating to payment of surface rent.

10. There is yet another indication that what is required to be paid in ZP  

cess, only if it is leviable under Zilla Parishads Act. Clause V(4) provides  

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that the mining lessee shall pay “cesses assessable on the land (ZP and GP   

cesses) subject to the revision of rates prescribed by Government from time   

to time.” This refers to revision by the State Government in exercise of the  

power under section 151(1) of Zilla Parishads Act and not in exercise of any  

power under the lease deed, as a lessor. This also shows that ZP cess as  

revised under the Zilla Parishads Act is payable only if it is payable under  

the Zilla Parishads Act and not otherwise.   

Re: Question No.(ii)

11. Section 127 of the Bombay Gram Panchayats Act, 1958 deals with  

levy and collection of cess. The said section is extracted below :  

“(1) The State Government shall levy cess at the rate of one hundred paise,  on  every  rupee  of  every  sum  payable  to  the  state  government  as  ordinary  land  revenue  in  the  area  within  the  jurisdiction  of  a  panchayat and thereupon, the state government shall (in addition to any  cess leviable under the Maharshtra Zilla Parishads and Panchayat Samitis  Act, 1961) levy and collect such cess in such area.

(2) to (4) deleted by Maharashtra Act 10 of 1992.

(5)  For the purpose of levying and collecting the cess referred to in sub- section (1), in the Bombay area athe provisions of section 144 (including  the  Fourth  Schedule),  145,  147  and  149,  in  the  Vidarbha  area,  the  provisions of section 151, and in the Hyderabad area, the provisions of  section 152 of the Maharashtra Zilla Parishad and Panchayat Samitis Act,  1961, shall apply thereto as they apply to the levy of cess leviable under  section 144, section 151, or as the case may be, section 152 of that Act.”    

(emphasis supplied)

Section 64 of the Maharashtra Land Revenue Code, 1966 (‘Code’ for short)  

reads thus:

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“64. All land liable to pay revenue unless specially exempted.  

All land, whether applied to agricultural or other purposes, and wherever  situate, is liable to the payment of land revenue to the State Government as  provided by or under this Code except such as may be wholly exempted  under  the  provisions  of  any  special  contract  with  the  State  Government, or an any law for the time being in force or by special grant  of the State Government.  

But  nothing  in  this  Code  shall  be  deemed  to  affect  the  power  of  the  Legislature of the State to direct the levy of revenue on all  land under  whatever title they may be held whenever and so long as the exigencies of  the State may render such levy necessary.”

(emphasis supplied)

The term ‘land revenue’  is  defined in  section  2(19)  of  the  said Code as  

under:-

“(19) “land revenue" means all sums and payments, in money received or  legally  claimable  by  or  on  behalf  of  the  State  Government  from  any  person on account of any land or interest in or right exercisable over land  by or vested in him, under whatever designation such sum may be payable  and  any  cess  or  rate  authorised  by  the  State  Government  under  the  provisions of any law for the time being in force; and includes premium,  rent,  lease  money,  quit  rent,  judi  payable  by  an  inamdar  or  any other  payment provided under any Act, rule, contract or deed on account of any  land.”

12. Section  127(1)  of  the  Panchayats  Act  casts  a  liability  to  pay  one  

hundred paise  as  cess  on every rupee of  every  sum payable to the state   

government  as  ordinary  land  revenue. This  cess  is  described  as  Gram  

Panchayat cess or GP cess. The effection of section 127(1) is that wherever  

land revenue is  payable  by a  person,  such person liable  to  pay the land  

revenue,  will  also have to  pay GP cess equal  to  the amount  of  the land  

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revenue. Therefore only a person who is liable to pay land revenue will be  

liable to pay GP cess. Section 64 of the Land Revenue Code provides that all  

lands are liable to payment of land revenue to the state government  except   

such as may be wholly exempted under the provisions of the special contract   

with the state government. Clause VII(1) of the lease deed dated 12.2.1980  

between State Government and the appellant provides such exemption as it  

says the lessee shall not be liable to pay land revenue. We extract below  

clause (1) of Part VII of the lease deed for ready reference:

“Lessee to pay rents and royalties, taxes, etc.

1. The lessee/lessees shall pay the rent, water rate and royalties reserved  by this lease at such times and in the manner provided in the PARTS V  and VI of these presents and shall also pay and discharge all taxes, rates  assessment  and  impositions  whatsoever  being  in  the  nature  of  public  demands which shall from time to time be charged, assessed or imposed  by the authority of the Central and State Governments upon or in respect  of  the premises  and works of the lessee/lessees  in  common with other  premises  and  works  of  the  like  nature  except  demands  for  land  revenues.”

(emphasis supplied)

13. Even under Clause V(4) of the lease deed, what is liable to be paid is  

‘surface rent’ which is equivalent to the non-agricultural assessment, and not  

land  revenue,  that  is  non-agricultural  assessment  itself.  Thus  there  is  a  

special contract between the State and the appellant whereby the appellant is  

exempted from paying land revenue. If the appellant is not liable to pay the  

land revenue, it  will  not be liable to pay any GP cess,  as section 127(1)  

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makes it clear that the said cess is payable only on the amount payable as  

land revenue.  If  no amount  is  payable  as  land revenue,  it  follows as  no  

amount is payable as GP cess. Therefore appellant is not liable to pay GP  

cess  under  the  Panchayats  Act.  Clause  V(4)  of  the  lease  deed  requires  

payment of  GP cess only if it is payable under the Panchayats Act. For the  

reasons stated while dealing ZP cess, we hold that the appellant is not liable  

to pay GP cess also.

Conclusion

14. The object  of clause V(4) of the lease deed is clear.  Normally,  all  

leases will contain a provision as to who will be liable to pay the rates, taxes,  

cesses  on the property  leased.  If  the lease  deed is  silent,  then the lessor  

would be liable to bear and pay the rates, taxes and cesses. Therefore, where  

the understanding is that the lessee should be liable to pay the rates, taxes  

and cesses in addition to the rent or premium, the lease deed will provide  

specifically that the lessee shall bear and pay all rates, taxes and cesses. But  

this is always on the assumption that there is a liability under the respective  

enactments to pay any rates, taxes, cesses in respect of the property. All that  

clause V(4) of the lease deed provides is that the lessee should bear and pay  

the ZP cess and GP cess, if it is leviable under the respective enactments.  

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15. In view of the above, we accept the contention of the appellant that it  

is not liable to pay ZP cess or CP cess to the State Government under the  

lease deed. It is however made clear that if the said cesses (ZP cess and CP  

cess) become payable by the appellant by virtue of any amendment to the  

provisions  of  the  respective  enactments  under  which  such  cesses  are  

leviable, then the appellant may have to pay the same. Be that as it may.   

16. The appeal is therefore allowed. The judgment of the High Court is  

set aside. The writ petition filed before the High Court stands allowed and  

the  demand  notices  dated  (nil)  July  1991  as  amended  on  28.10.1994  in  

regard to the period 1987 to 1992 is quashed in so far as the demand for  

payment of ZP cess and CP cess.  

...............................................J. [ R. V.  Raveendran ]

................................................J. [A. K. Patnaik]

New Delhi                    ..................................................J. September  27, 2011         [Sudhansu Jyoti Mukhopadhaya)

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