# TATA STEEL LTD v. UNION OF INDIA & ORS - **Citation:** [2015] 6 S.C.R. 29 - **Court:** Supreme Court of India - **Decided:** 2015-03-17 - **Case number:** Civil Appeal Nos. 2938-2939 OF 2015 - **Bench:** H. L. Dattu, Madan B. Lokur, K. Sikri - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/tata-steel-ltd-v-union-of-india-ors-30879 - **Pages:** 38 ## Headnote A B A. Mineral Concession Rules, 1960: rr. 648, 64C - Coal c - Royalty- Whether royalty is payable on processed coal that is coal consumed or removed from the boundaries of the leased area in a beneficiated form or on the raw or unprocessed or Run-of-Mine (ROM) coal at the pit head- In the case of SAIL, it was held by Supreme Courton 10.8.1998 D that royalty is chargeable in accordance with s. 9 of Mines and Mineral Act on the quantity of coal extracted at the pit head-After decision in SAIL, Government issued notification dated 25.9.2000 inserting rr.648 and 64C whereby ROM minerals after being processed in the leased area were E chargeable to royalty on processed minerals - Held: In view of insertion of r. 648 and 64C, the levy of royalty on coal has now been postponed from the pit head to the stage of removal of the coal (whether unprocessed or ROM coal or whether beneficiated coal) - In view of decision in Central Coalfields F Ltd., TISCO and Tata Steel is entitled to refund of royalty from 10. 8. 1998 to 25. 9. 2000 - For the period from 25. 9. 2000 onwards, T/SCO is obliged to pay royalty as per r.648 and r. 64C of the Rules - Mines and Minerals (Development and G Regulation) Act, 1957 - s. 9 - Coal - Royalty. Disposing of the appeals, the Court HELD: 1. A plain reading of Rule 648 of the MCR clearly suggests that the leased area mentioned therein H 29 30 SUPREME COURT REPORTS [2015) 6 S.C.R. A has reference to the boundaries of the leased area given to a lease holder. Sub-rule (1) provides that if the ROM mineral is processed within the boundaries of that leased area, then royalty will be chargeable on the processed mineral removed from the boundaries of the B leased area. However, if the ROM mineral is removed without processing from the boundaries of the leased area then in terms of sub-rule (2) royalty will be chargeable on the unprocessed ROM mineral. Rule 648 of the MCR is silent about removal of a mineral from the c mine/pit-head but which is not removed from the boundaries of the leased area. This is a clear pointer that royalty is to be paid by the lease holder only on removal of the mineral from the boundaries of the leased 0 area. Similarly, Rule 64C of the MCR relates to royalty on tailings or rejects. As far as Tata Steel is concerned, its computation given in the Convenience Volume indicates that royalty is paid and payable on middlings and tailings. Rule 64C of the MCR makes it clear that E royalty is payable on rejects when they are sold or consumed after being dumped. There is nothing to indicate in Rule 648 and Rule 64C of the MCR that coal has been put on a different pedestal from other minerals mentioned in the MMDR Act read with the Second F Schedule thereto. [Paras 77 to 79] [61-F; 62-A-D, F-G, H; 63-A] 2. With effect from 251h September, 2000 when these rules were inserted in the MCR, royalty is payable G on all minerals including coal at the stage mentioned in these rules, that is, on removal of the mineral from the boundaries of the leased area. For the period prior to that, the law laid down in Central Coalfields Ltd. will operate, as far as coal is concerned, from 101h August, H 1998 when SAIL was decided, though for different TATA STEEL LTD. v. UNION OF INDIA & ORS. reasons. [Para 80] [63-D-E] State of Orissa v. Steel Authority of India Ltd. (1998) 6 SCC 476: 1998 (3) SCR 1074; National Mineral Development Corporation Ltd. v. State of M.P (or NMDC).- (2004) 6 sec 281: 2004 (2) Suppl. SCR 1; Mis Central Coalfields Ltd. v. State of Jharkhand decided by Supreme Court in CA 5651 of 2005 dtd.25.7.2006 - relied on. National Coal Development Corporation Ltd. State of Orissa AIR 1976 Orissa 159; National Coal Development Corporation Ltd. State of Orissa (1998) 6 sec 480 - referred to. Case Law Reference 1998 (3) SCR 1074 relied on. Paras 3, 13 to 15, 60, 61, 63, 67' 69, 72 to 74, 80, 82, 87 31 A B c D 2004 (2) Suppl. SCR 1 relied on. Para 57, 64, 68, 69, E 72 AIR 1976 Orissa 159 referred to. Para 12, ## Text _Characters 0–39,851 of 67,498. This is a partial read: ask again with offset=39851 for what follows._ [2015] 6 S.C.R. 29 TATA STEEL LTD. v. UNION OF INDIA & ORS. (Civil Appeal Nos. 2938-2939 OF 2015) MARCH 17, 2015 [H. L. DATTU, CJI., MADAN B. LOKUR AND K. SIKRI, JJ.] A B A. Mineral Concession Rules, 1960: rr. 648, 64C - Coal c - Royalty- Whether royalty is payable on processed coal that is coal consumed or removed from the boundaries of the leased area in a beneficiated form or on the raw or unprocessed or Run-of-Mine (ROM) coal at the pit head- In the case of SAIL, it was held by Supreme Courton 10.8.1998 D that royalty is chargeable in accordance with s. 9 of Mines and Mineral Act on the quantity of coal extracted at the pit head-After decision in SAIL, Government issued notification dated 25.9.2000 inserting rr.648 and 64C whereby ROM minerals after being processed in the leased area were E chargeable to royalty on processed minerals - Held: In view of insertion of r. 648 and 64C, the levy of royalty on coal has now been postponed from the pit head to the stage of removal of the coal (whether unprocessed or ROM coal or whether beneficiated coal) - In view of decision in Central Coalfields F Ltd., TISCO and Tata Steel is entitled to refund of royalty from 10. 8. 1998 to 25. 9. 2000 - For the period from 25. 9. 2000 onwards, T/SCO is obliged to pay royalty as per r.648 and r. 64C of the Rules - Mines and Minerals (Development and G Regulation) Act, 1957 - s. 9 - Coal - Royalty. Disposing of the appeals, the Court HELD: 1. A plain reading of Rule 648 of the MCR clearly suggests that the leased area mentioned therein H 29 30 SUPREME COURT REPORTS [2015) 6 S.C.R. A has reference to the boundaries of the leased area given to a lease holder. Sub-rule (1) provides that if the ROM mineral is processed within the boundaries of that leased area, then royalty will be chargeable on the processed mineral removed from the boundaries of the B leased area. However, if the ROM mineral is removed without processing from the boundaries of the leased area then in terms of sub-rule (2) royalty will be chargeable on the unprocessed ROM mineral. Rule 648 of the MCR is silent about removal of a mineral from the c mine/pit-head but which is not removed from the boundaries of the leased area. This is a clear pointer that royalty is to be paid by the lease holder only on removal of the mineral from the boundaries of the leased 0 area. Similarly, Rule 64C of the MCR relates to royalty on tailings or rejects. As far as Tata Steel is concerned, its computation given in the Convenience Volume indicates that royalty is paid and payable on middlings and tailings. Rule 64C of the MCR makes it clear that E royalty is payable on rejects when they are sold or consumed after being dumped. There is nothing to indicate in Rule 648 and Rule 64C of the MCR that coal has been put on a different pedestal from other minerals mentioned in the MMDR Act read with the Second F Schedule thereto. [Paras 77 to 79] [61-F; 62-A-D, F-G, H; 63-A] 2. With effect from 251h September, 2000 when these rules were inserted in the MCR, royalty is payable G on all minerals including coal at the stage mentioned in these rules, that is, on removal of the mineral from the boundaries of the leased area. For the period prior to that, the law laid down in Central Coalfields Ltd. will operate, as far as coal is concerned, from 101h August, H 1998 when SAIL was decided, though for different TATA STEEL LTD. v. UNION OF INDIA & ORS. reasons. [Para 80] [63-D-E] State of Orissa v. Steel Authority of India Ltd. (1998) 6 SCC 476: 1998 (3) SCR 1074; National Mineral Development Corporation Ltd. v. State of M.P (or NMDC).- (2004) 6 sec 281: 2004 (2) Suppl. SCR 1; Mis Central Coalfields Ltd. v. State of Jharkhand decided by Supreme Court in CA 5651 of 2005 dtd.25.7.2006 - relied on. National Coal Development Corporation Ltd. State of Orissa AIR 1976 Orissa 159; National Coal Development Corporation Ltd. State of Orissa (1998) 6 sec 480 - referred to. Case Law Reference 1998 (3) SCR 1074 relied on. Paras 3, 13 to 15, 60, 61, 63, 67' 69, 72 to 74, 80, 82, 87 31 A B c D 2004 (2) Suppl. SCR 1 relied on. Para 57, 64, 68, 69, E 72 AIR 1976 Orissa 159 referred to. Para 12, 87 (1998) 6 SCC 480 referred to. Paras 12, 51 CIVILAPPELLATE JURISDICTION: Civil Appeal Nos. F 2938-2939 of 2015. From the Judgment and Order dated 12.03.2014 of the High Court of Jharkhand at Ranchi in W.P. (C) Nos. 1°504 and 1505of2009. G WITH Civil Appeal Nos. 307 and 303 of 2004 and 2940-2941 of 2015 H 32 SUPREME COURT REPORTS [2015) 6 S.C.R. A K. V. Vishwanathan, Anup K., Adeeba Mujahid, Anil Kumar Jha, R. K. Ojha, Pu nit Dutt Tyagi for the Appellant. Devashish Bharuka for the Respondents. B The Judgment of the Court was delivered by MADAN B. LOKUR, J. 1. Leave granted. 2. Two sets of appeals are before us. One set of appeals pertains to the Tata Iron and Steel Company Limited C (TISCO) and the other set pertains to Tata Steel. 3. In the set of appeals pertaining to TISCO, the first appeal is Civil Appeal No. 303/2004 filed by TISCO against the judgment and order dated 23rd July, 2002 passed by the D Jharkhand High Court. 1 The grievance in this appeal is that though the application of the law laid down by this court in State of Orissa v. Steel Authority of India Ltd.2 (hereafter SAIL) has been accepted by the High Court, namely, that royalty is chargeable [in accordance with Section 9 of the E Mines and Minerals (Development and Regulation) Act, 1957 (the MMDR Act)) on the quantity of coal extracted at the pithead, yet the refund of excess royalty paid by TISCO for the period from 1 O'h August, 1998 (the date of the decision in SAIL) till June 2002 [about Rs.29.34 er.) has been denied. F TISCO therefore claims entitlement to refund on the excess royalty paid by it for this period. 4. Civil Appeal No.307/2004 has been filed by the State of Bihar (Now Jharkhand) against the same judgment G and order dated 23rd July, 2002. The submission is that after the decision in SAIL the Government of India issued a notification dated 251h September, 2000 inserting Rule 648 and Rule 64C in the Mineral Concession Rules, 1960 (hereafter H 1 MANU/JH/0590/2002 2 (1ssa) 6 sec 476 TATA STEEL LTD. v. UNION OF INDIA & ORS. 33 [MADAN 8. LOKUR, J.] MCR) and as a result of this, Run-of-Mine (ROM) minerals, A after being processed in the leased area are exigible to royalty on the processed mineral. It is contended that these rules were, unfortunately, not broughtto the notice of the High Court and that the decision rendered by the High Court accepting the law laid down in SAIL is incorrect. 8 5. In this context, it must immediately be noted that the contention of the State of Jharkhand is not that Rule 648 and Rule 64C of the MCR have retrospective effect. That being so, the question is whetherTISCO is entitled to refund of the C excess royalty paid from 1 Oth August, 1998 (the date of the decision in SAIL) to 25th September, 2000 and if so whether the High Court was right in denying that refund. Also, the question is whether TISCO is entitled to refund of royalty from 25th September, 2000 till June 2002 and if so, whether the D High Court was right in denying that refund. 6. The other set of appeals pertaining to Tata Steel consists of four appeals. These appeals filed by Tata Steel arise out of S.L.P. (C} Nos.8972-73/2014 and S.L.P. (C} E Nos.9016-17/2014 and are directed against a common judgment and order dated 12th March, 2014 passed by the Jharkhand High Court in W.P. (C} Nos.1504/2009 & 1505/ 2009 and W.P. (C) Nos. 2995/2008 & 2999/2008.3 · The grievance of Tata Steel is that despite the decision of this F court in SAIL and the decision dated 23rd July, 2002 of the Jharkhand High Court, royalty is being charged from Tata Steel on processed or beneficiated coal and not on extracted . coal or Run-of-Mine (ROM) coal at the pit-head. It is submitted that this is despite the affidavit of the Ministry of G Coal of the Government of India that Rule 648 and Rule 64C of the MCR "may not be particularly applicable on coal minerals." Tata Steel is also aggrieved by the conclusion of 3 2014 (2) JLJR 702 H 34 SUPREME COURT REPORTS (2015) 6 S.C.R. A the Jharkhand High Court that Rule 648 and Rule 64C of the MCR are constitutionally valid. Appeals filed by Tata Steel 8 7. The question for our consideration in the set of appeals filed by Tata Steel is whether royalty is chargeable under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 and the Second Schedule thereto on raw or unprocessed or Run-of-Mine (ROM) coal at the c pit-head or is it chargeable on coal after it is processed and beneficiated in the washeries located within the boundaries of the leased area. In our opinion, the question of payment of royalty has arisen in respect of other minerals and this has been discussed in cases relating to those minerals. On o an appreciation of the decisions rendered, it must be held that royalty is payable on the processed or beneficiated coal only after 25'" September, 2000 and royalty is payable on unprocessed, raw or ROM coal extracted at the pit-head only for the period from 1 Olh August, 1998 to 25'" September, E 2000. Background facts 8. Tata Steel holds several mining leases for coal in F the State of Jharkhand, in the district of Ramgarh (formerly Hazaribagh) known as the West Bokaro Colliery and in the district of Dhanbad known as the Jamadoba and Belatand group of collieries. The coal mines are captive coal mines. Tata Steel has an adequate number of washeries in the G leased area where the raw coal extracted from the mine (Run-of-Mine coal) is washed to improve its quality and is then dispatched for use in its steel plant at Jamshedpur for the production of iron and steel. H 9. Initially Tata Steel and TISCO were of the opinion TATA STEEL LTD. v. UNION OF INDIA & ORS. 35 [MADAN B. LOKUR, J.) that in accordance with the provisions of Section 9 of the Mines and Minerals (Regulation and Development) Act, 1957 [now renamed as the Mines and Minerals (Development and Regulation) Act, 1957 or the MMDR Act]• they were liable to pay royalty at the rates mentioned in the Second Schedule to the MMDR Act on the tonnage of washed coal, that is after raw coal or Run-of-Mine (ROM) coal is removed from A B the washery post the beneficiation process. In fact a writ petition was filed by TISCO in the Patna High Court being CWJC No.1 of 1984 (R) seeking a declaration to this effect. The State of Bihar (at that time) was of the view that royalty C was payable at the rate mentioned in the Second Schedule to the MMDRAct on the tonnage of the extracted coal at the pit-head and not on the tonnage of the washed or beneficiated coal. By its judgment and order dated 7111 August, 1990 the Patna High Court held that TISCO was liable to pay royalty on the tonnage of the washed or beneficiated coal. It was held: "From the plain reading of section 9(2) of the Act, it is 4 With effect from 18th December, 1999 9. Royalties in respect of mining leases. -(1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at such commencement, pay royalty in respect of. any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area after such commencement, at the rate D E for the time being specified in the Second Schedule in respect of that mineral. F (2) The holder of a mining lease granted on or after the commencement of this Act shall pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area at the rate for the time being specified in the Sec ond Schedule in respect of that mineral. (2-A) The holder of a mining lease, whether granted before or after the commencement of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, shall not be liable to pay any royalty in respect of G any coal consumed by a workman engaged in a colliery provided that such consumption by the workman does not exceed one-third of a tonne per month. (3) The Central Government may, by notification in the Offiei.al Gazette, amend the Second Schedule so as to enhance or reduce the rate at whlOR royalty shall be payable in respect of any mineral with effect from such date as ·may be specified in the notification: Provided that the Central Government shall not enhance the rate of royally in H respect of any mineral more than once during any period of three years. 36 A B SUPREME COURT REPORTS (2015] 6 S.C.R. clear that royalty is payable on the coal removed from the leased area and so long it is not removed, no royalty is payable. In view of the factthat coal is removed from the leased area, only after it is washed, the petitioner is liable to pay royalty on the weightage of that coal." 10. This decision has attained finality and the position at law in this regard continued till 1998. 11. On 1 Olh August, 1998 this court delivered judgment c in SAIL. The question raised in that case was whether the Steel Authority of India Ltd. or SAIL was liable to pay royalty at the rate mentioned in the Second Schedule to the MMDR Act on the quantity of mineral (limestone and dolomite) extracted as it is or on the quantity arrived at after these D minerals have undergone a process of removal of waste and foreign matter. According to the State of Orissa royalty was chargeable on the extracted minerals at the rate mentioned in the Second Schedule to the MMDR Act while according to SAIL royalty was chargeable at the rate E mentioned in the Second Schedule to the MMDR Act on the quantity of minerals obtained after the process of removal of waste and foreign matter. 12. This court referred to an earlier decision of the F Orissa High Court relating to the National Coal Deyelopment Corporation Ltd. 5 In that case, the High Court held that removal of coal from the seam in the mine and extracting it through the pit's mouth to the surface would satisfy the requirement of Section 9 of the MMDR Act to give rise to a G liability for royalty. The decision of the Orissa High Court was appealed against but the appeal was dismissed by this court.6 Relying upon this decision, it was concluded in SAIL that the process of removal of waste and foreign matter amounts to consumption and, therefore, the entire mineral 5 National Coal Development Corporation Ltd. v. State of Orissa, AIR 1976 Orissa 159 6 National Coal Development Corporation Ltd. v. State of Orissa, (1998) 6 SCC 480 TATA STEEL LTD. v. UNION OF INDIA & ORS. 37 [MADAN B. LOKUR, J.] extracted is exigible to a levy of royalty. By necessary A implication the decision of the Patna High Court in CWJC No.1 of 1984 (R) filed by TISCO stood reversed. 13. Perhaps as a consequence of the decision in SAIL, Rule 64B and Rule 64C were inserted in the MCR by a B notification dated 25th September, 2000. 7 14. Be that as it may, in view of the decision in SAIL, the stand taken by Tata Steel/TISCO completely changed and the view now sought to be canvassed was that royalty c is payable at the rate mentioned in the Second Schedule to the MMDRAct on the tonnage of unprocessed or ROM coal at the pit-head and not on processed or beneficiated coal. 15. With regard to the claim of Tata Steel that it was D liable to pay royalty only on the tonnage of unprocessed or ROM coal at the pit-head in terms of the decision in SAIL, the response of the State of Jharkhand was that in view of Rule 64B and Rule 64C of the MCR, royalty was liable to be paid at the rate mentioned in the Second Schedule to the E MMDR Act on the tonnage of beneficiated coal and not on the tonnage of the raw, extracted or ROM coal at the pit~ head. In other words, not only was there a volte face by Tata Steel/TISCO but also by the State Government. The High Court has observed in the impugned judgment dated 12th F March, 2014 that the reason for the volte face both by Tata Steel and by the State of Jharkhand was that by the notifications dated 1st August, 1991 and 14th October, }994 the rate of royalty on the washed or beneficiated coal was increased.8 G 7 National Mineral Development Corporation Ltd. v. State of M.P., (2004) 6 SCC 281 paragraph 32 had earlier echoed this view a By a notification dated 5th May, 1987 the rate of royalty on coking coal Steel Grade I was fixed at Rs. 7/- per ton and of Washery Grade IV at Rs.5.50 per ton; by a notification dated 1•August. 1991 the rate of royalty on coking coal Steel Grade I was increased to Rs.150/- per ton and of coking coal Washery Grade IV to Rs.75/- per ton; by a notification H dated 14~ October, 1994 the rate of royalty on coking coal Steel Grade I was further increased to Rs.195/- per ton and of coking coal Washery Grade IV to Rs.95/- per ton. 38 SUPREME COURT REPORTS (2015] 6 S.C.R. A 16. In any event, this interpretational dispute led to the B filing of a set of writ petitions by Tata Steel in the High Court of Jharkhand, out of which the present appeals have arisen. The controversy Quality of coal and stage of chargeability 17. When coal is extracted from a mine, it is referred to as raw coal or unprocessed coal. Depending upon the use to which it may be put, which also depends upon its ash content C and its calorific value, raw coal or unprocessed coal or Runof-Mine (ROM) coal can be used as it is. 18. As far as Tata Steel is concerned, it is stated on page 164 of the Convenience Volume handed over to us by D learned counsel for Tata Steel that "Most of our raw coal falls in the (on average) Washery Grade IV." It may be mentioned that coal of Washery Grade IV has ash content between 28% and 35%. In the synopsis and lists of dates filed by Tata Steel in the appeals arising out of S.L.P. (C) E Nos. 8972-73 of 2014 it is stated as follows: F "The coal, when extracted in its raw form also known as ROM contains high percentage of ash. Though ROM is fitfor many purposes, it is not fitfor the steel industry." 19. Even the Union of India in its affidavit filed by the Under Secretary in the Ministry of Coal in W.P. (C) No.1504 of 2009 in the Jharkhand High Court states to the same effect, namely, that ROM coal can be used as it is. It is stated G in paragraph 11 thereof as follows: "Considering the fact that in case of coal, where the entire ROM can be generally made usable, the Respondents No. 1 & 2 are of the opinion that rule 648 H and the rule 64C [of the Mineral Concession Rules, 1960] TATA STEEL LTD. v. UNION OF INDIA & ORS. 39 [MADAN B. LOKUR, J.) may not be particularly applicable on coal minerals." A 20. Similarly, the State of Jharkhand in its affidavit filed in the same case has stated in paragraph 79 as follows: 'That with regard to the averments made by the petitioner in Paragraphs 84 and 85 of the instant writ application it is stated and submitted that it is not necessary that coal produced from a mine should always be subjected to processing. There are various coal mines in the country producing raw coal without any processing ....... " 21. Therefore, while raw coal or unprocessed coal or ROM coal extracted by Tata Steel being Washery Grade IV having ash content between 28% and 35% can be used as B c it is for certain purposes, it requires to undergo a process of D beneficiation to make it suitable for use.in steel making. This process is undertaken by Tata Steel in its washeries in the leased areas. 22. The controversy in the present appeals is, therefore, limited to the question whether royalty is payable E at the rate mentioned in the Second Schedule to the MMDR Act on processed coal, that is, coal consumed or removed from the boundaries of the leased area in a beneficiated form or on the raw or unprocessed or ROM coal at the pitF head. 23. That the controversy is limited to the stage at which royalty is chargeable on coal is also clear from paragraph 17 of W.P.(C) No.2999 of 2008 filed by Tata Steel in the High Court wherein it is stated (though ROM coal can be G used as it is) as follows:- "17. That the petitioner all along has been utilizing the entire coal raised from the said West Bokaro Colliery for H 40 SUPREME COURT REPORTS (2015] 6 S.C.R. A the purpose of treatment and/or washing thereof as to reduce the ash percentage thereof with a view to use the same in its Steel Plant, in as much as in the Steel plant only coking coal of high grade which containing [contains] less ash can be used." B 24. Similarly, in paragraph 31 of the counter affidavit filed by the Union of India in W.P.(C) No.1504 of 2009 in the High Court it is stated as follows:- C "31. That in reply to the statements made in para No.84 of the Writ Petition the Answering Respondent most humbly and respectfully state that the applicability of Rule 648 and Rule 64C [of the Mineral Concession Rules, 1960] is necessary for minerals that need D processing or beneficiation before being used, especially metallic minerals. However, [as far as] its applicability to coal minerals is concerned considering the fact that in case of coal, where the entire ROM can be generally made usable the Respondent No. 1 & 2 E are of the opinion that Rule 648 and Rule 64C may not b~ particularly applicable to coal mineral." 25. It is quite clear from the.above that raw or unprocessed or ROM coal at the pit-head c;an be used for certain purposes; F it is also clear that as far as Tata Steel is concerned, Washery Grade IV coal that it extracts needs to be beneficiated to make it usable in the steel industry and the controversy is limited to the issue of payment of royalty - whether it is payable on raw or unprocessed-or ROM coal at the pit-head G or it is payable on processed Steel Grade coal. Coal beneficiation 26. The question that, therefore, arises is what is the H consequence of beneficiation? Very briefly, the consequence TATA STEEL LTD. v. UNION OF INDIA & ORS. 41 [MADAN B. LOKUR, J.] of beneficiation of coal is upgrading or improving its quality A from the ROM coal. In the Convenience Volume handed over to us, with reference to beneficiation of coal, it is stated by Tata Steel as follows: 9 "The crushed raw coal (ROM) has ash percentage varying from 22% to 40% and moisture of 3% to 5%. For use in Blast furnace for steel making, we require clean coal of uniform quality at low ash %. So, Beneficiation of ROM raw coal is done to reduce the ash content to bring up to Steel Grade coal. ROM coal of various seams at coal mine is fed in to the Coal washery (Beneficiation plant) for beneficiation so that the final clean coal product has ash of below 15% (Steel Grade coal). For coal beneficiation, gravity separation methods for coarser (size 13 mm to 0.5 mm) material and froth floatation method for finer material (size< 0.5 mm) are done. So, before beneficiation, the raw coal is crushed in to size below 13 mm at Coal Handling Plant (Crushing Plant). The coarse material i.e. size from 13 mm to 0.5 mm is treated in dense media cyclone whereas, less than 0.5 mm is treated by froth floatation method. As beneficiation is a wet process hence, it increases the moisture percentage of beneficiated coal by around 8% to 15%. After beneficiation, apart from the clean coal (required in Blast furnace for Steel making), we also get Coal by-products named as, middling (ash 40-45%), Tailings (ash 40-45%) and Rejects (ash 60-65%). 9 This has not been disputed by the State of Jharkhand B c D E F G H 42 SUPREME COURT REPORTS [2015] 6 S.C.R. A The product quantity after beneficiation process gets increased due to wet process by adding moisture into the output, shown by an example below - Production (Extraction): The basis figure of production B of 100 tonnes of ROM coal has been taken. c D E F G H Therefore, Quantity produced (extracted):= 100 tonnes Beneficiation: The products are dewatered but still the surface moisture gets adhered to the product generated. The beneficiation is a wet process i.e. raw coal mass flows through different process in slurry form. Output is measured on wet process because it is transported on wet basis (with moisture). Hence the output is more than the input of raw coal. Beneficiation process results in Clean Coal; Middlings; Tailings; and Rejects Thus 100 tonnes of raw coal will produce approximately 115 tonnes of washed product. Output from collieries (Average Quantities): Clean coal = 40 tonnes Middlings = 40 tonnes Tailings = 25 tonnes Rejects = 10 tonnes Conclusion: It is quite clear that beneficiation process (dense media gravity separation and froth floatation) are a physical TATA STEEL LTD. v. UNION OF INDIA & ORS. 43 [MADAN B. LOKUR, J.] separation process to separate higher ash coal and A lower as~ coal, so no chemical changes are there in the coal mineral, as there are no chemical reactions involved during this beneficiation process. Referring below a flow chart (not relevant] ........ From the quantity related table, it is also quite evident that due to addition of water during wet beneficiation, the summation of beneficiated coal product quantity is higher than fed ROM coal quantity." B c 27. From this, it is quite clear that the beneficiation process, as far as coal is concerned, has two significant consequences - the grade of coal improves (from Washery Grade IV it could improve to Steel Grade I) and the weight of the coal increases (from 100 tons of raw ROM coal to 105 D tons [excluding rejects] of beneficiated coal). 28. However, the process of beneficiation for other minerals does not result in the same consequence. As mentioned by the Union of India in paragraph 9 of its counter E affidavit filed in W. P. (C) No. 1504 of 2009 in the High Court, the beneficiation of copper has different consequences. It is stated, in this regard as follows: "It is stated that the mineral extracted during mining in its primary state is called run of mine (ROM), which may or may not be useable in its primary state depending on the minerals and its grade. In such a case where the entire ROM cannot be used generally, there is a level of processing required to beneficiate the ROM to enhance the grade ore and also take out waste material occurring with the ore. Rule 648 is specifically applicable in such class of minerals where only a part of the entire ROM mineral extracted through mining can be used. For example, in the case of copper F G H • 44 A 8 c D E F G SUPREME COURT REPORTS [2015] 6 S.C.R. ore, in which the metal contained in ore is in the range of 1 % to 2% of the ROM the ROM is converted into a high as 25%, before it is sent out the lease area for refining and smelting. In such cases, the rule 648 of MCR provides for royalty to be charged by the State Government on the higher grade of ore that is being taken out of the lease area, in terms of the royalty rate prescribed in Second Schedule to the MMDRAct. Rule 648 of MCR does not specify the royalty rates and its applicability is only to the extent of facilitating levy or royalty on the processed ore removed from the lease area, and not the mineral consumed in the lease area. Further royalty is required to be paid as per the rates notified by the Central Government in Second Schedule to the MMDR Act. Rule 648 of MCR is therefore applicable in case of such minerals which cannot be used without processing. Similarly, rule 648 [rule 64C] of the MCR is applicable on removal of tailings or rejects from leased area for dumping and restricts levy on royalty on tailings or rejects. However, levy of royalty is applicable only in case such tailings or rejects subsequently used for sale or consumption. For example, tailing from copper concentrate are likely to contain silver. However, royalty on silver generally cannot be levied till silver is extracted from the tailings and sold or consumed. Rule 64C is therefore applicable on such cases of minerals, where tailings or rejects generated during mining or processing are likely to be dumped due to its limited use." 29. In other words, the ROM copper ore contains hardly 1 % or 2% of copper but after the beneficiation process the H copper extract from the. ore increases '') about 25%. It is TATA STEEL LTD. v. UNION OF INDIA & ORS. 45 [MADAN B. LOKUR, J.] thereafter sent for refining and smelting. In other words, copper A ore cannot be utilized as it is or in the ROM state - it must undergo a beneficiation process from the ore and can then be used. 30. As mentioned in SAIL the consequences of processing dolomite or limestone has a consequence B different from that of copper ore, namely, mere removal of waste and foreign matter. It appears that this process does not improve the quality of the dolomite or the limestone, though with the removal of waste and foreign matter, the weight would decrease somewhat. It may be mentioned that royalty is charged on dolomite and limestone on a tonnage C basis. 31. It is in this context that the nature of the mineral and the stage at which royalty is to be computed become important. The basis of levy would have to be rational and it might have different consequences at different stages. D Computation of royalty 32. As far as the computation of royalty on coal is concerned, Tata Steel has given details of the methodology of computation in the Convenience Volume handed over to us. 1° For the purposes of computing the royalty amount, the E quantities assumed by Tata Steel are given below. 33. It is said that 100 tons of raw coal postbeneficiation will produce approximately 115 tons of the washed products. The break-up of this is as follows: Clean coal = 40 tons Middlings = 40 tons Tailings Rejects ;::: 25 tons = 10 tons 34. The computations made by Tata Steel are on the basis of the above assumptions. The rate of royalty is given in the Notification dated 141h October, 1994 amending the Second Schedule to the MMDR Act. For coking coal Steel 10 This has not been disputed by the State of Jharkhand. F G H j\6 SUPREME COURT REPORTS [2015] 6 S.C.R. A Grade I, coking coal Steel Grade II and coking coal Washery Grade II the rate of royalty is Rs.195/- per ton. For coking coal Washery Grade IV the rate of royalty is Rs. 95/- per ton. B c D E 35. Therefore, for every 100 tons of coking coal Washery Grade IV extracted by Tata Steel, the royalty payable on ROM coal was Rs.9500/- with effect from 141" October, 1994. However, if the royalty were to be computed on postbeneficiation coal, the royalty payable by Tata Steel would work outto: Product Grade Quantity Royalty Amount (tons) rate (in Rs) (Rs/ton) ; I ' ' , Clean coal Steel Grade I 40 195 7800 Middlings Grade E 40 70 2800- ·-- ··-. ·-- . Tailings Grade D 25 70 1750 Royalty 105; 12350 payable ~-Since rejects were ungraded and no rate 11\/as prescribed, no ; royalty was payable on rejects. F 36. Based on the above computation, the difference in G royalty on post-beneficiation coal (as claimed by the State of Jharkhand) and on ROM coal (as claimed by Tata Steel) is Rs.2850/- per 100 tons of coal extracted (12350 minus 9500 =2850). 37. This position continued till August 2002 when the Second Schedule to the MMDR Act was amended by a notification dated 161hAugust, 2002. H 38. In terms of the notification dated 16th August, 2002 TATA STEEL LTD. v. UNION OF INDIA & ORS. 47 [MADAN B. LOKUR, J.) the rate of royalty for coking coal Steel Grade I, coking coal A Steel Grade II and coking coal Washery Grade II was raised to Rs.250/- per ton. For coking coal Washery Grade IV the rate of royalty was raised to Rs.115/- per ton. 39. Therefore, for every 100 tons of coking coal Washery B Grade IV extracted by Tata Steel, the royalty payable on ROM coal was Rs.11500/- with effect from 161h August, 2002. However, if the royalty were to be computed on postbeneficiation coal, the royalty payable by Tata Steel would work ~~ c li:'rociuct -I G"J"ail&-TCiLiaril;1y1- R0Yi111Y_[_Am.oulit i I · ; (tons) rate (in Rs) ; i i (Rs/ton) j , L ' --------- - - -- -- --- -·- --- -·· - - ----- _, ------ Clean coal Steel Grade I I I 40 250 10000 ' --- - - ----- -------- Middlings Gracie E -- -----140 85 --- - -34()0 ; : Tailings Grade D I 25 85 2125 I ' Royalty i 105 15525 I I payable ' I I ~----- ___ , _______ J -- ----- - - --·------- ---------- l Rejects have not been included in this calculat1on. J ------------ --- --- --- ·-· - - - -- . ----·--------- 40. Based on the above computation, the difference in royalty on post-beneficiation coal (as claimed by the State of Jharkhand) and on ROM coal (as claimed by Tata Steel) is Rs.4025/- per 100 tons of coal extracted ( 15525 minus 11500 D E F =4025). G 41. This position continued till August 2007 when the Second Schedule to the MMDR Act was amended by a notification dated .1'1August, 2007. Through this notification the rate of royalty on coal became a combination of a specific rate and an ad valorem rate, the formula for calculation being H . 48 SUPREME COURT REPORTS [2015] 6 S.C.R. A R =a+ bP where 'R' is the royalty in Rs. per ton, 'a' is a fixed component, 'b' is a variable or ad valorem component and 'P' is the basic pit-head price of ROM coal. 42. The notification provides that for computing royalty (R) on Steel Grade I coal, a = Rs.180; b = 5% of 'P'; P = B basic pit-head price of ROM coal as reflected in the invoice. c D E F Similarly, for payment of royalty (R) on Washery Grade IV coal, a = Rs.90; b = 5% of 'P'; P = basic pit-head price of ROM coal as reflected in the invoice. 43. Tata Steel gives the computation arrived at on the basis of the above notification in the Convenience Volume as follows: "As Tata Steel is not selling ROM, hence we take the prices notified by CIL [Coal India Limited] for its various collieries. For example, we apply the prices notified by Coal India Ltd for Central Coalfields Ltd. In the Price Notification No.181dated15.10.2009forCCL, the basic price for ROM Washery Grade IV is Rs.1120. 11 '. ----· - ' l Qaooty 1~-1Amut ! R'ocb:t Grade ~rate ' . Qnjens) J (•-=--- r-:;- - ------ - --- ------ Royalty j 1.8.2007 I 16840 2240 payable ' ' ' --------- j ___ --- ·--- _, - --- - F 47. As is quite obvious, the difference in royalty payable would run into huge figures particularly since coal is mined in millions of tons. G Discussion 48. Two interpretations have been given to removal of a mineral from the leased area as postulated in Sections 9(1) H • 50 SUPREME COURT REPORTS [2015] 6 S.C.R. A and 9(2) of the MMDRAct. 49. The first is a literal meaning given by the Patna High Court in its judgment and order dated 7'h August, 1990. The High Court gave a literal interpretation to Section 9(2) of the B MM DR Act and effectively interpreted the removal of a mineral from the leased area as removal from the boundaries of the leased area. On this basis, it was concluded that since beneficiated coal is removed from the leased area, Tata Steel c D E is liable to pay royalty on the weight of the beneficiated coal. 50. The second interpretation is a somewhat restrictive interpretation given by the Orissa High Court in National Coal Development Corporation Limited. In that case, it was held that: "The incidence of royalty under the general tenor of the scheme [of Section 9 of the MMDRAct] arises when coal is severed from the seam in its natural state within the mine and removed outside. Removal [of coal] from the seam in the mine and extracting the same through the pit's mouth to the surface satisfies the requirement of Section 9 [of the MMDR Act] in order to give rise to liability for royalty." F 51. In other words, the Orissa High Court did not accept the literal meaning of removal from the leased area occurring in Section 9 of the MMDR Act as removal from the boundaries of the leased area but gave a restricted interpretation to removal from the leased area as extraction of G the coal from the seam in the mine which is in the leased area, that is, extraction from the pit-head. This restricted interpretation was accepted by this court in the appeal filed by National Coal Development Corporation and on that basis this court also upheld the payment of royalty by the lease holder on coal H consumed by the workmen of the Corporation prior to the TATA STEEL LTD. v. UNION OF INDIA & ORS. 51 [MADAN B. LOKUR, J.] amendment of Section 9 of the MMDRAct in 1972.12 A 52. Both the interpretations mentioned above relating to removal from the leased area, literal and restricted, were given in the context of extraction of coal. 53. The controversy regarding the interpretation of B removal of a mineral (not coal) from the leased area again came up for consideration in a petition filed by SAIL in the Orissa High Court. This petition concerned itself with the payment of royalty on dolomite and limestone. While referring c to Section 9(1) oftne-MMDRActand the lease deed of SAIL, the Orissa High Court held as follows:- "A distinction has to be made between removal from the mine and removal from the leased area. If after the mineral is extracted from the mine, it underg9es some processing and during processing, a part of the mineral is wasted and the wastage remains on the leased area and is not removed therefrom, the lessee cannot be asked to pay royalty on that portion of the wastage."13 54. In other words, the Orissa High Court took the literal interpretation given to removal from the leased area D E as removal from the boundaries of the leased area, virtually reiterating the literal interpretation given by the Patna High F Court in its judgment and order dated 7'.h August, 1990. 55. This court in the appeal filed by SAIL did not get into the question of removal of the mineral from the boundaries of the leased area but noted that the extracted mineral undergoes a process of removal of waste and foreign G matter before it is removed from the boundaries of the leased area. The decision of this court on the levy of royalty turned on 12 National Coal Development Corporation Ltd. v.