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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1854   OF 2016 (Arising out of S.L.P. (Civil) No.33894 of 2011)

STATE OF RAJASTHAN & ANR.                                  ..Appellants  

Versus

M/S. DEEP JYOTI COMPANY & ANR.                     …Respondents  

WITH

CIVIL APPEAL NO.  1855    OF 2016 (Arising out of S.L.P. (Civil) No.35897 OF 2013)

J U D G M E N T

R. BANUMATHI, J  .   

Leave granted.

2. These appeals assail the order of Division Bench of the  

High  Court  of  Rajasthan  at  Jodhpur  allowing  Special  Appeal  

No.369 of 2009 dated 17.01.2011 filed by the respondent thereby  

quashing  the  circular  dated  06.10.2008  which  provided  for  

deduction of  royalty  payable to the mining department from the  

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bills of the contractors who have been given the work contract by  

the  government  department.  Relying  upon  the  order  in  Special  

Appeal  No.369  of  2009,  the  High  Court  dismissed  the  Special  

Appeal No.753 of 2012 filed by the State.

3. Necessary facts which led to filing of the appeal arising  

out of SLP (C) Nos.33894 of 2011 are as follows:-Respondent-Deep  

Jyoti Company, a partnership firm registered as ‘A’ class contractor  

with various departments of Government of Rajasthan was awarded  

contract  for  construction  of  link  road.  On  06.10.2008,  the  

Mines(Group-2)  Department,  Government  of  Rajasthan  issued  a  

Circular being No.P13(6)Khan/Group-2/80-Part dated 06.10.2008,  

concerning collection of  royalty  from the  contractors  involved  in  

construction work using mineral masonry stone, grit, boulder, river  

sand,  kankar,  murrum, ordinary sand (excluding brick earth)  in  

government  department,  autonomous  bodies,  government  

undertaking.  As per circular dated 06.10.2008, before starting the  

work, the respondents had to obtain a short term permit (STP) from  

the concerned Mining Engineer by paying a requisite short term  

permit fees and the cost of rawanna book for the minerals which  

were being used as raw material  for the work. Clause (5)  of  the  

circular deals with the deduction of royalty at the rates provided in  

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the circular from the bills of the contractors.  Clause (7) of the said  

circular provided that if the contractor had purchased the royalty  

paid mineral from a leaseholder then he can get refund of the same  

by submitting due receipts/rawanna issued by the lessee within a  

period of thirty days.  Clauses (2), (3), (5) and (7) of the said circular  

dated 06.10.2008, which are relevant read as under:-

“2. Before commencing the work the contractor shall get a permit  from  the  concerned  Mining  Engineer/Assistant  Mining  Engineer  office  by  applying  in  Scheduled  Proforma  and  enclosing an affidavit duly notary certified with requisite short  term permit fees and the cost of rawanna book according to the  quantity of mineral specified in G-Schedule.

3. Contractor shall produce the certified copy of the above permit  to the concerned department alongwith the first bill, otherwise  construction department should not make payment of the bill  and if  by any construction department  the payment  for  the  first bill or any other bill is made without getting certified copy  of  short  time permit,  the said department  shall  be  liable  to  deposit the cost of the mineral.

4. …….

5. The  concerned  construction  department  shall  deduct  the  royalty depending on the type of construction in the following  manner from the bills of the contractor and shall pay through  cheque  to  the  concerned  Mining  Engineer/Assistant  Mining  Engineer  or  get  adjusted  through  auditor  general  and  the  details shall be informed within 15 days.

1.  Road Construction        1.75% 2.  Building Construction  1.00% 3.  Road Renewal  0.75% 4.  Other works in which 0.  5%      mineral is used

6. …..

7. If any contractor purchases royalty paid mineral from a lease  holder  and  he  wants  the  refund of  royalty,  then  he  has  to  submit  an  application  to  the  concerned  Mining  Engineer/Assistant Mining Engineer office alongwith rawanas  issued by the lease holder, receipts of RCC/ERCC contractors  

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and  copy  of  bill  within  30  days  of  the  completion  of  the  construction work.   The refund of  those rawannas which is  desired  shall  be  issued  on  the  name  of  the  concerned  construction department contractor.  No assessment shall be  required if refund application is not make.”  

4. Respondent-Deep  Jyoti  Company  filed  Writ  Petition  

No.1309 of 2009 before the High Court, challenging the legality of  

the said circular dated 06.10.2008 and prayed for restraining the  

authorities from implementing the said circular.   Learned Single  

Judge  dismissed  the  writ  petition,  holding  that  the  condition  

imposed  by  the  circular  dated  06.10.2008  was  a  reasonable  

restriction  and  in  public  interest.   Aggrieved  thereof,  the  

respondent preferred appeal before the Division Bench of the High  

Court.   By  the  impugned  order,  Division  Bench  quashed  the  

circular dated 06.10.2008 and allowed the appeal holding that the  

contractor  cannot  be  compelled  to  obtain  short  term permit  for  

conducting  mining  operations  and  also  cannot  be  asked  to  pay  

royalty from the bills payable and then seek for refund of the same.  

Relying  upon  M/s  Deep  Jyoti  Company’s case,  the  High  Court  

dismissed  Special  Appeal  No.753  of  2012  by  order  dated  

14.01.2013.  These  appeals  challenge  the  correctness  of  the  

impugned orders.

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5. Learned  counsel  for  the  appellants  Mr.  Shiv  Mangal  

Sharma, Additional Advocate General submitted that the circular  

dated 06.10.2008 merely  provides the  procedure  for  payment of  

royalty by the contractors who have been given the works contract  

by the department of government and that the said condition was  

imposed  by  the  State  Government  in  public  interest.  It  was  

contended that the High Court erred in  not noticing clause (7) of  

the  circular  dated  06.10.2008 which takes care  of  the situation  

that the contractor can get refund of the royalty deducted from his  

bills  by  the  department  if  the  contractor  satisfies  by  producing  

necessary  bills  showing  that  he  used  royalty  paid  mineral  in  

execution of the contract.

6. Per  contra,  learned  counsel  for  the  respondent  Mr.  

Manish Singhvi contended that the High Court rightly quashed the  

circular  dated  06.10.2008  as  the  State  cannot  compel  a  work  

contractor to obtain short term permit and also to pay royalty in  

advance  and  then  claim  refund  of  the  royalty  as  the  same  is  

unreasonable and arbitrary.

7. We have carefully considered the rival contentions and  

perused the impugned orders and material on record.

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8. The circular dated 06.10.2008 came to be issued by the  

State  Government  which  provides  the  procedure  for  payment  of  

royalty by the contractors who have been given the works contract  

by  department  of  government.   According to  the  appellants,  the  

said circular was issued in order to ensure the payment of royalty  

and that the royalty paid mineral is used for construction work.  As  

noticed  earlier,  clause  (2)  of  the  circular  provides  that  before  

starting the work, the contractor was to obtain short term permit  

and rawanna book and contractor was also required to submit an  

affidavit to that effect that he had obtained the short term permit  

for mining the required mineral and rawanna book.  Clause (3) of  

the said circular  provides that  if  the contractor  fails  to  produce  

copy of the short term permit, the works department will withhold  

the  payment  of  bills.   Clause  (3)  of  the  said  circular  further  

provided that in case, the government department which allots the  

work to the contractor makes the payment of contract bills without  

obtaining the copy of short term permit and rawanna book, then  

the  works  department  shall  be  liable  to  deposit  the  cost  of  the  

mineral.  Thus in terms of clauses (2) and (3), it is incumbent upon  

the works contractor to obtain short term permit before starting the  

work.

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9. Some of the fundamental aspects, while dealing with the  

validity of the aforesaid circular dated 06.10.2008, need to be kept  

in  mind.   The  said  circular  which  mandates  the  contractors  to  

obtain short-term permit fess is meant for those contractors who  

are registered as ‘A’ class contractors with various departments of  

Government of Rajasthan. Such registration qualifies them to bid  

for  and  obtain  Government  contracts,  which  are  construction  

contracts. The circular dated 06.10.2008 imposing the conditions,  

thus,  is  required only for the purpose of  undertaking that  work  

which  is  awarded  by  the  Government/Government  Departments  

etc. Otherwise, there is no such requirement or obligation on the  

part of contractors while doing any other private work.  It is trite  

that for awarding Government work, it can impose and stipulate  

conditions,  eligibility criteria as well  as terms and conditions on  

which the contract would be executed.  If any person wants to bid  

for  or  undertake  the  work,  such  persons  has  to  fulfill  those  

conditions.  The  only  limitation  is  that  conditions  so  imposed  

should  meet  the  test  of  fairness  and  reasonableness  and  such  

conditions should not be arbitrary or contrary to any law.   The  

question, therefore, is as to whether imposition of the condition to  

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obtain short-term permit as provided in circular dated 06.10.2008  

is reasonable and not arbitrary.   

10. In so far as the contention that in terms of the circular  

there is compulsion to obtain short term permit, in our view, as  

such there is no such compulsion.  It  is only to ensure that no  

mineral  is  excavated  and  used  without  payment  of  royalty.  The  

purpose of  short-term permit is to ensure that the material  and  

minerals etc. used by the contractor in the construction work are  

royalty paid.  It only means that such material is purchased by the  

contractor from the market which is legally mined and on which  

due royalty is paid.  In other words, the objective is to see that  

illegally mined mineral/material is not purchased by the contractor  

and  used  in  the  construction  work  which  is  awarded  by  the  

Government. Not only it is a laudable object, such a stipulation is  

inserted in order to check illegal mining which unfortunately has  

assumed serious proportions in the recent past.   Otherwise,  the  

respondents herein do not stand to loose anything inasmuch as the  

moment evidence is produced to the effect that royalty was paid on  

the  minerals  by  the  leaseholder  which  was  used  in  the  

construction,  the  construction  contractor  like  the  respondents  

would be refunded the royalty so paid by it  in terms of  circular  

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dated  06.10.2008.   In  terms  of  clauses  (5)  and  (7)  of  the  said  

circular, the contractor has to pay royalty at the rates specified in  

the circular depending upon the nature of work and on production  

of bills showing payment of royalty, the contractor can get refund of  

royalty.  There is, thus, no financial burden on the respondents of  

any nature.  The purpose which is sought to be achieved, viz., non-

royalty  paid  mineral  (which  would  naturally  be  illegally  mined  

mineral) is not used in the execution of the Government work and  

it  cannot be treated as unreasonable or arbitrary.   In our view,  

there is a complete justification for providing such a provision.   

11. The  minor  minerals  removed  from  the  quarries,  

admittedly are the property of the government and the same cannot  

be removed and used without payment of royalty.  It is therefore  

the  duty  of  the  government  to  ensure  that  only  royalty  paid  

minerals are used in the work and the purpose of  issuing such  

circular was to avoid pilferage/leakage of revenue because royalty  

can be very conveniently evaded by the contractors either by not  

purchasing the material from the mining leaseholders or obtaining  

it  from  unauthorized  excavators.   In  case,  if  the  contractor  

purchases the material from unauthorized person who has not paid  

royalty,  there  would  be  loss  to  the  public  exchequer  and  the  

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circular  was  issued  to  check  evasion  or  loss  to  the  public  

exchequer.  Such condition cannot be said to be unreasonable and  

arbitrary and therefore no prejudice could be said to  have been  

caused to the contractors.   

12. Learned counsel for the respondents contended that the  

royalty  can  be  levied  in  respect  of  the  mineral  removed  or  

consumed from lease areas at the rates prescribed in Mines and  

Mineral (Development and Regulation) Act 1957 and any such levy  

can  only  be  by  a  legislation  and  not  by  any  circular  and  the  

impugned circular dated 06.10.2008 which is in the nature of levy  

of royalty was rightly quashed by the High Court and the impugned  

orders warrant no interference.  The clauses stipulating deduction  

of royalty payable to the mineral department at the rates stipulated  

in the circular cannot be said to be a levy.  As noticed earlier, the  

circular  stipulates  that  the  royalty  is  deducted  at  the  rates  

prescribed in the circular, on production of bills by the contractor  

to  the mining department showing that  they had purchased the  

royalty paid mineral from the leaseholder and thus it only provides  

the procedure for collection of royalty. The circular only provides  

the procedure for payment of royalty for the minerals used by the  

contractors  who  have  been  given  the  works  contract  by  the  

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government department.  The High Court did not keep in view the  

object of the circular and erred in quashing the impugned circular.  

13. The  impugned  orders  of  the  High  Court  in  Special  

Appeals No.369 of 2009 and 753 of 2012 are set aside and these  

appeals are allowed.  Consequently the Writ Petitions filed by the  

respondents herein stand dismissed.  The parties are to bear their  

respective costs.

..……………………CJI.            (T.S. THAKUR)   

…..……………………J.       (A.K. SIKRI)   

…..……………………J.               (R. BANUMATHI)   

        New Delhi; February  26, 2016

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