Associated Cement Company Ltd. Vs. the Government of Andhra Pradesh - Court Judgment

Excerpt:
sales tax - determination of status - sections 2, 2 (1), 3, 5, 6, 6-a, 9, 15 and 28 of andhra pradesh general sales tax act, 1957 - whether petitioner holding mining leases can be said purchaser of limestone - appellant resisted sales tax imposed considering them purchaser of limestone - price appellants were getting was just a royalty out of lease property - royalty amount cannot be said sale price or purchase price - held, no sales tax is leviable on royalty amount paid to appellant under section 6-a of act. - - strong reliance is placed upon the decision of the supreme court in state of madhya pradesh v. for this section to attract, the following requirements must be satisfied :(i) the dealer must purchase goods, the sale or purchase of which is liable to tax under the act; the.....jeevan reddy, j.1. the common question arising in these three writ petitions is, whether the petitioners, who are holding mining leases in respect of a major mineral (limestone), can be said to be the purchasers of limestone mined by them. the petitioners are manufacturers of cement, and they use the limestone mined by them for their own manufacturing purposes. the question arises under the andhra pradesh general sales tax act, 1957 (hereinafter referred to as 'the act'). section 6-a of the act provides, inter alia : 'every dealer, who in the course of business - (i) .................................. (ii) purchases any goods (the sale or purchase of which is liable to tax under this act) from a person other than a registered dealer, and (a) either consumes such goods in the manufacture.....

Judgment:

Jeevan Reddy, J.

1. The common question arising in these three writ petitions is, whether the petitioners, who are holding mining leases in respect of a major mineral (limestone), can be said to be the purchasers of limestone mined by them. The petitioners are manufacturers of cement, and they use the limestone mined by them for their own manufacturing purposes. The question arises under the Andhra Pradesh General Sales Tax Act, 1957 (hereinafter referred to as 'the Act'). Section 6-A of the Act provides, inter alia :

'Every dealer, who in the course of business -

(i) ..................................

(ii) purchases any goods (the sale or purchase of which is liable to tax under this Act) from a person other than a registered dealer, and

(a) either consumes such goods in the manufacture of other goods for sale or otherwise, or

(b) disposes of such goods in any manner other than by way of sale in the State, or

(c) .................................

shall pay tax on the turnover relating to purchase aforesaid at the same rate at which but for the existence of the aforementioned circumstances, the tax would have been leviable on such goods under section 5 or section 6.'

2. Section 5 is the charging section, while section 6 deals with tax in respect of declared goods.

3. It is necessary to state a few facts for a proper appreciation of the question at issue. It would be sufficient if we set out the facts in W.P. No. 6307 of 1980, the first among the three writ petitions.

4. The petitioner is a Associated Cement Companies Ltd. It has a number of cement factories all over the country, two of which are located in Andhra Pradesh - one at Mancherial in Adilabad District, and another at Tadepalli, in Guntur District. The main raw material for manufacture of cement is said to be the limestone, and it is required in large quantities. The petitioner took on lease a large area of about 1,900 acres in Mancherial and in Seetharamapuram, and nearby villages for purposes of the said two factories. The lease is granted under the provisions of the Mines and Minerals (Regulation and Development) Act, 1957. Under the terms of the lease deed, the petitioner is liable to pay dead-rent at a particular rate for each hectare comprising the lease, irrespective of the carrying on of the mining operations, or the quantity of limestone mined. Royalty is also payable on the limestone quarried, at a particular rate on each tonne. In case the amount of royalty exceeds the dead-rent, royalty alone is payable. Under the terms of the lease, the petitioner is further empowered to make, maintain and use any pits, shafts, waterways, and airways, and to erect, construct, maintain and use any engines, machinery plants, dressing floors, furnaces, coke-ovens, brick-kilns, store-houses, bungalows, sheds, and other buildings and works, required for, and in connection with the mining. The petitioner is also entitled to enter upon and use a sufficient part of the surface of the land mentioned in Part I of the deed, for the purpose of stocking, keeping, storing or depositing therein any produce of the mines or works carried on, and instruments and tools connected therewith. It is also empowered to clear undergrowth and brushwood, and to fell and utilize any trees or timber thereon, subject to the conditions laid down in the deed. Part III of the lease deed mentions the restrictions and conditions subject to which the lessee shall exercise the liberties, powers and privileges mentioned supra. It is not entitled to erect any building or other structure, or to carry on any surface operations in or upon any public pleasure ground, burning or burial ground, or place regarded as a sacred place, or any houses or village sites, or public road, or public ground, so as to injure or prejudicially affect any buildings, work properties, or rights of other persons. The petitioner is also obliged to allow the existing and future holders of Government licences or leases over any land which is comprised in, or adjoins, or is reached by the land held by the lessee, and to provide reasonable facilities of access thereto. Part IV mentions the liberties, powers and privileges reserved to the State Government. It is entitled to enter upon the leased land, and to search for, win work, dig, raise, dress, etc., and carry away any minerals other than limestone, and to carry on all operations in connection with such other minerals. The petitioner should not cause any hindrance or interference to such activity. Part V mentions the rents and royalties, etc., payable. In respect of the surface land used by the petitioner from time to time for the purpose of its lease, it is bound to pay rent at the rate of Re. 1 per acre; this is in additition to the dead-rent/royalty. It is not necessary to notice the contents of Parts VI to IX of the deed.

5. The mining lease was originally granted to the petitioner for a period of 20 years in 1956. In 1977 it was renewed for a further period of 20 years.

6. Section 6-A of the Andhra Pradesh General Sales Tax Act was introduced by the Andhra Pradesh General Sales Tax (Second Amendment) Act (49 of 1976) with effect from 1st September, 1976. After the introduction of the said section, the Commercial Tax Officer, Company Circle III, Hyderabad, issued the impugned show cause notice dated 10th November, 1980 calling upon the petitioner to explain, inter alia, why sales tax should not be levied at the rate of 4% on the royalty amount paid by it in respect of the limestone under sections 9 and 9-A of the Mines and Minerals (Regulation and Development) Act, 1957. The show cause notice pertains to the assessment year 1978-79. The royalty component of the turnover proposed to be subjected to sales tax is a sum of Rs. 34,21,386.53. The petitioner straightaway came to this Court by way of this writ petition, asking for a writ to prohibition restraining the Commercial Tax Officer from proceeding further in pursuance of the show cause notice and levying sales tax on limestone extracted by the petitioner, and used in the manufacture of cement.

7. A counter-affidavit has been filed in W.P. No. 6528 of 1980 (the counter-affidavits filed in the other two writ petitions, if any, are not placed before us), contending that the show cause notice has rightly and validly been issued and that, sales tax is exigible under section 6-A of the Act, inasmuch as the petitioner must be deemed to have been 'purchasing' limestone from the Government, the royalty representing the price thereof.

8. Sarvasri K. Srinivasa Murthy and V. Rajagopala Reddy, the learned counsel for the petitioners, urged the following contentions in support of the writ petitions; the mining lease granted by the Government in favour of the petitioners is a lease of immovable property, as defined by the Transfer of Property Act; the lease is granted for the purpose of mining/quarrying limestone; mining/quarrying the limestone is only a method of enjoying the immovable property leased to the petitioners; there is no sale of limestone at the time of its removal, and the royalty does not represent the price but only the owner's share in profits; in effect, royalty is the lease amount; there is no element of sale or purchase involved and hence, section 6-A of the Act is not attracted. Reliance is placed upon several decisions, to which we shall refer in due course.

9. On the other hand, it is contended by Sri A. Venkataramana, the learned Government Pleader for Commercial Taxes, that the label given to the deed executed between the Government and the petitioners is not conclusive but that, one must look to the true and real nature of the transaction; if so examined, it is nothing but a licence to quarry and take away the limestone found in a particular area, on paying the royalty which is nothing but the price of the mineral removed. The mineral does not become the property of the petitioners until and unless they pay royalty. Strong reliance is placed upon the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. : [1977]2SCR149 among other decision, to which also we shall make a reference at the appropriate stage.

10. Clause (h) in section 2 of the Andhra Pradesh General Sales Tax Act defines the expression 'goods', in the following words :

'(h) 'goods' means all kinds of movable property other than actionable claims, stocks, shares and securities, and includes all materials, articles and commodities including those used or to be used in the construction, fitting out, improvement or repair of movable or immovable property; and also includes all growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale and also includes motor spirit.

Explanation. - 'motor spirit' means any substance which by itself or in admixture with other substances is ordinarily used, directly or indirectly to provide reasonably efficient fuel for automotive or stationary internal combustion engines, and includes petrol, diesel oil, and other internal combustion oils, but does not include power alcohol, kerosene, furnace oil, coal or charcoal.'

11. The expression 'sale' is defined in clause (n), in the following words :

'(n) 'sale' with all its grammatical variations and cognate expressions means every transfer of the property in goods by one person to another in the course of trade or business, for cash, or for deferred payment, or for any other valuable consideration, and includes any transfer of materials for money consideration in the execution of a works contract, provided that the contract for the transfer of such materials can be separated from the contract for the services and the work done, although the two contracts, are embodied in a single document or in the supply or distribution of goods by a society (including a co-operative society), club, firm or association to its members, but does not include a mortgage, hypothecation or pledge of, or a charge on, goods.

Explanation I : .......................................

Explanation II : .......................................

Explanation III : .......................................'

12. The expression 'turnover' is defined in clause (s). It reads thus :

'(s) 'turnover' means the total amount set out in the bill of sale (or if there is no bill of sale, the total amount charged) as the consideration for the sale or purchase of goods (whether such consideration be cash, deferred payment or any other thing of value) including any sums charged by the dealer for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, for anything done in respect of goods sold at the time of or before the delivery of the goods and any other sums charged by the dealer, whatever be the description, name or object thereof ........'

13. Section 6-A, in so far as it is relevant, has already been set out hereinbefore. The respondents seek to include the royalty amount paid by the petitioners in their turnover, as relating to purchase of limestone which they consumed in the manufacture of cement. Reliance is upon clause (ii)(a) in section 6-A. For this section to attract, the following requirements must be satisfied : (i) the dealer must purchase goods, the sale or purchase of which is liable to tax under the Act; (ii) the goods must be purchased from a person other than a registered dealer; and (iii) such goods must be consumed by the dealer in the manufacture of other goods meant for sale, or otherwise. In this case, the petitioners are, undoubtedly, dealers. The Government - it is not disputed - is not a registered dealer. It is also not disputed that the limestone is consumed by the petitioners in the manufacture of cement, which is meant for sale. The only dispute is, whether the petitioners/dealers can be said to have 'purchased' the limestone, which is mined/quarried by the petitioners themselves. We may also mention that, if the petitioners, who are manufacturers of cement, had themselves not held mining leases, they would have been obliged to purchase limestone from others, in which case the consumption of limestone would be liable to tax, and they would have passed on the same to the petitioners who are purchasers/consumers. Because, in these cases, the petitioners themselves are the holders of mining leases and use the limestone quarried by them, for their own manufacturing purposes, the State is relying upon section 6-A(ii)(a) of the Act and is seeking to levy the tax on, what it calls, the 'purchase' of limestone by the petitioners from the State, the royalty amount being treated as the purchase amount.

14. The question raised herein turns upon our answer to two subsidiary questions, viz., (i) what is the nature of the contract entered into between the parties, to wit, whether it is a lease of immovable property, within the meaning of the Transfer of Property Act, or whether it is a licence, or a sale agreement; and (ii) what is the nature of royalty - whether it is the purchase price, or the owner's share in the produce

15. In Commissioner of Income-tax, Bihar and Orissa v. Kamakshya Narain Singh : [1940]8ITR563(Patna) a Special Bench of the Patna High Court dealt with the nature of a coal-mining settlement whereunder certain rights of entering upon the land of the settler, sinking shafts, etc., and winning and taking away the coal, were granted in consideration of receiving a premium, and annual sum computed on the amount of coal raised and the amount of coke manufactured, subject always to a minimum annual sum, which was always payable irrespective of the quantity of coal raised, or coke manufactured. The question was whether it is a 'lease' within the meaning of section 105 of the Transfer of Property Act, or a sale of coal land. This question arose under the Income-tax Act, 1922. The department sought to include the royalty amount as income from property under section 6 of the said Act. The assessee's contention was that the royalty amount represents a capital receipt being the consideration for the sale of coal, and hence cannot be treated as revenue in his hands. This contention was repelled, and it was held that the mining lease must be regarded as a lease, and not as sale of coal and therefore, the annual payment of royalty in such cases must be regarded as rent and hence income in the hands of the assessee, and not a capital receipt. The substantial provisions of the lease-deed considered by the Special Bench in that case are practically the same as in the present leases. The Special Bench observed that the 'right to enjoy immovable property' occurring in section 105 of the Transfer of Property Act, means the right to enjoy the property in the manner in which that property can be enjoyed, and further that, if the subject-matter of the lease is coal land, it can only be enjoyed and occupied by the lessee by working it, as indicated in section 108 of the Transfer of Property Act, which regulates fully the rights and liabilities of the lessors and lessees, in India. This decision was affirmed by the Privy Council in Kamakshya Narain Singh v. Commissioner of Income-tax, Bihar and Orissa and has been cited with approval by the Supreme Court in Tarkeshwar Sio Thakur Jiu v. B. D. Dey & Company : [1979]3SCR18 . The facts of the case before the Supreme Court may briefly be noted : the appellant before the Supreme Court, holding the interest of a 'Darpatnidar' in the land in question, granted to the respondents a lease of the land for the purpose of raising and taking sand therefrom, for a period of 9 years, which was subsequently renewed for another period of 9 years. The original grant was in July, 1941 and second 9 year period was to expire in April, 1959. The grant was called a 'licence' by the parties. When the respondents did not pay the amount stipulated under the contract, a suit was filed by the appellant, which was resisted by the respondents, inter alia, on the ground that the land having vested in the State under the West Bengal Estates Acquisition Act, 1954 they (who were really tenants and not licensees under the appellant) became direct tenants under the State with respect to the land in question, with effect from the date of coming into force of the said Act, and were paying rent to the State. On this basis, the respondents denied their liability to pay the amount stipulated, to the appellant. It is not necessary to notice the findings of the trial Court and the first appellate Court; it would be sufficient to notice the findings of the High Court and then the ratio of the decision of the Supreme Court. The Calcutta High Court held (a) that, the lease for a period of 9 years not having been registered, is void under section 107 of the Transfer of Property Act, but would still operate as a lease from month-to-month; (b) that, the contract between the parties was not a licence; and (c) that, since the appellant-plaintiff was not directly working the mine in the land, he was not entitled to retain the same under section 28 of the said West Bengal Act, and if so, the respondents became direct tenants under the State. Accordingly, the plaintiff-appellant's suit was dismissed. When the matter came up to the Supreme Court, two questions were urged. The principal question that was raised and considered was : whether : section 6 of the West Bengal Act governs the case, or section 28 (if section 6 applied, the appellant was entitled to succeed, while, if section 28 applied, the appellant was bound to fail). The second question was : what is the nature of the transaction between the parties, represented by exhibit 1, i.e., whether it was a 'lease', or a 'licence' On the principal question, the Supreme Court agreed with the High Court that section 28 governs the case and accordingly, the appellant cannot claim any rights in the land. This finding was itself sufficient to dispose of the appeal, and though it was not necessary to go into the second question, yet, the Supreme Court went into the same for the reason that 'a good deal of argument was addressed on this point'. It first noticed the terms of the contract between the parties. The following characteristics were found to be noteworthy : (i) a right to 'raise' and 'take out' and remove sand 'lying inside' the land in dispute, was granted by the plaintiff to the defendants; the right so granted included the 'right to carry out all the operations' necessary for 'extracting' sand, and also to take it away and appropriate the same. In other words, the right to carry out 'mining operations' as defined in clause (d) of section 3 of the Mines and Minerals (Regulation and Development) Act, 1957 was granted for winning the sand, and to appropriate it; (ii) the said right was granted for a period of 9 years commencing from April, 1950; (iii) the right was granted for a 'price' fixed on yearly basis, irrespective of the quantity of sand extracted. The 'price' fixed was Rs. 66 per annum; (iv) the contract provided that 'the second party (appellant) will be entitled to take khas possession of the land' at the end of the stipulated period, which necessarily implies that, if the respondents continued to pay the 'price' as stipulated in the contract, they shall be entitled to enter into and remain in exclusive khas possession of the land for the purpose of carrying out the mining operations for the full stipulated period of 9 years and that, the appellate will not be entitled to retake khas possession of the land or revoke the so-called 'licence' before the end of the said 9 year period. It was contended by the appellant, that, on the above terms, it must be construed as merely a 'licence' whereunder no right, title and interest in the land was given to the respondents except the raising of the sand; that, it was not a 'lease' as defined in section 105 of the Transfer of Property Act, but only a contract to sell sand, the price being payable in yearly instalments. It was contended that, the essential characteristic of a lease is that the subject is one which is occupied and enjoyed, and the corpus of which does not, in the nature of things and by reason of user, disappear. Reliance was placed upon Thakur Girdhari Singh v. Meghlal Pandey AIR 1917 PC 163 and paragraph 899 of Halsbury's Laws of England. Paragraph 899 in Halsbury's Laws of England reads as follows :

'A lease may be granted of land or any part thereof, and since minerals are a part of the land it follows that a lease can be granted to the surface of the land and the minerals below, or of the surface alone, or of the minerals alone. It has been said that a contract for the working and getting of minerals alone ...... though for convenience called a mining lease, is not in reality a lease at all in the sense in which one speaks of an agricultural lease, and that such a contract, properly considered, is really a sale of a portion of the land at a price payable by instalments, that is by way of rent or royalty, spread over a number of years.'

16. This contention of the appellant was rejected by the Supreme Court on the following reasoning : though the definition of 'mining lease' in the Mines and Minerals (Regulation and Development) Act, 1957 is not used in the narrow technical sense in which the expression 'lease' is defined in section 105 of the Transfer of Property Act, yet, in India, a settlement of the character of a mining lease is always regarded as a 'lease', notwithstanding the fact that it may not, meticulously and strictly, satisfy all the characteristics of a 'lease' as defined in the Transfer of Property Act. After noticing the definition of the expressions 'lease' and 'immovable property' in the Transfer of Property Act, and the definition of 'immovable property' in the Transfer of Property Act, and the definition of 'immovable property' in the General Clauses Act, the Supreme Court observed :

'A right to carry on mining operations in land to extract a specified mineral and to remove and appropriate that mineral, is a 'right to enjoy immovable property' within the meaning of section 105 (Transfer of Property Act); more so, when - as in the instant case - it is coupled with a right to be in its exclusive khas possession for a specified period. The 'right to enjoy immovable property' spoken of in section 105, means the right to enjoy the property in the manner in which that property can be enjoyed. If the subject-matter of the lease is mineral land or a sand-mine, as in the case before us, it can only be enjoyed and occupied by the lessee by working it, as indicated in section 108, Transfer of Property Act, which regulates the rights and liabilities of lessors and lessees of immovable property.'

17. This statement of law was supported with reference to the decision of the Privy Council in Nageshwar Bux Roy v. Bengal Coal Company and Commissioner of Income-tax, Bihar and Orissa v. Kamashaya Narain Singh : [1940]8ITR563(Patna) a decision of a Special Bench of the Patna High Court, referred to hereinbefore, and the decision of the Privy Council in appeal. It was then observed :

'The ratio of the Patna case applies with greater force to the facts of the case before us, because, herein, (a) the annual fixed payment had no relation, whatever, with the quantity of sand extracted and appropriated and what is more important, (b) the defendant was given a right to enter into and remain in khas possession of the mineral field for the stipulated period of 9 years. The transaction (exhibit 1), though labelled as a licence, has all the essential elements of a 'lease', even under section 105 of the Transfer of Property Act. In short, stripped of the form in which it is draped, the agreement (exhibit 1), in substance and in fact, is a 'lease' in the accepted legal sense of the term and not a 'licence' as defined in section 52 of the Indian Easements Act ..........'

18. At this stage, we may notice the distinction between the lease considered by the Supreme Court in Tarkeshwar's case : [1979]3SCR18 , and the lease deed before us. They are : (i) In Tarkeshwar's case : [1979]3SCR18 the lease deed provided for a fixed sum of Rs. 66 as payable every year, irrespective of the fact whether the respondents removed the sand, or not, as also the quantity of sand extracted/removed, whereas according to the lease deed before us, the amount payable is determined on a twin bases, viz., if the royalty payable on the limestone actually extracted/removed is less than the dead-rent payable under section 9-A of the 1957 Act (Central Act), the dead-rent which is a fixed amount calculated on each hectare of the land covered by the lease deed, is payable; but, if the royalty payable exceeds the amount of dead-rent, then royalty alone is payable. In other words, either the royalty or the dead-rent, whichever is higher, has to be paid. Further, a rent at the rate of Re. 1 per acre, called 'surface rent' and water rate is also payable under clause (4) of Part V, which clause reads as follows :

'(4) Payment of surface rent and water rate. - 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 these 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 an 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 its original 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.'

19. Evidently, the surface rent payable under clause (4) is in addition to the dead-rent payable under clause (2) of Part V, read with section 9-A of the Act. In other words, the amount payable under the leases before us, is more likely to be a fluctuating amount.

(ii) In Tarkeshwar's case : [1979]3SCR18 , the mineral, viz., sand, was lying mostly on the surface of the land of an extent of 9 acres and therefore, 'khas' possession of the entire land was delivered to the respondents. Whereas in the case before us, though the extent of the land concerned is very extensive, i.e., 1,900 acres, khas possession of the entire extent is not delivered; what is granted and demised under the deed is 'all those mines, beds/veins, seams of limestone marbs, clays, shales and lumps ......... situated, lying and being in or under the lands which are referred to in Part I of the said schedule, together with the liberties, powers and privileges to be exercised or enjoyed in connection herewith, which are mentioned in Part II of the said schedule subject to the restrictions and conditions, as the exercise and enjoyment of such liberties, powers and privileges which are mentioned in Part III of the said schedule, except and reserving out of this demise unto the State Government the liberties, powers and privileges mentioned in Part IV of the said schedule to hold the premises hereby granted and demised unto the lessee/lessees from the ....... day of .......... 19 ......; for the term of 20 years thence next ensuing yielding and paying unto the State Government the several rents and royalties mentioned in Part V of the said schedule at the respective times therein specified, subject to the provisions contained in Part VI of the said schedule, and the lessee/lessees hereby covenants/covenant with the State Government as in Part VII of the said schedule is expressed and the State Government hereby covenants with the lessee/lessees as in Part VIII of the said schedule as expressed and it is hereby mutually agreed between the parties hereto as in Part IX of the said schedule is expressed ........'.

20. Part I describes the area of the land leased, while Part II mentions the liberties, powers and privileges to be exercised and enjoyed by the lessee subject to the restrictions in Part III. Para (2) says that the lessee shall have the liberty and power at all times, during the period of lease, to enter upon the said lands and to search for mines, bore, dig, drill or win, etc., and to carry away and dispose of the mineral, and to do all things necessary for the purpose. The lessee is also entitled to make use of any roads and ways, and also to make any tramways, railway-roads, etc., for the said purpose. It is stated : 'All the above liberties and powers are given for the purposes mentioned in the document, viz., for the purpose of mining and removing the limestone in the said area. For the same purpose, the lessee is given the power to enter upon and use a sufficient part of the surface of the land mentioned in Part I, for the purpose of stocking, keeping, storing or depositing therein any produce of the mines or works carried on .........' Again, for the same purpose, the lessee is entitled to enter upon and use a sufficient part of the said lands to beneficiate any ore produced from the land in question. Similarly, it is entitled to clear undergrowth and brushwood, and to fell and utilize any trees or timber thereon, subject to the payment of appropriate rates. Even the exercise of liberties, powers and privileges granted to the petitioner in Part II is subject to the limitations and restrictions mentioned in Part III. According to Part III, the lessee should not carry on any surface operations in or upon any public pleasure ground, burning or burial ground, or place regarded as a sacred place, or any houses or village sites, or public road, or public ground, so as to injure or prejudicially affect any buildings, work properties, or rights of other persons. It cannot also enter the reserved forest, if any, situated on the said land. It is obliged to allow the existing and future holders of Government licences or leases in respect of any other produce or mineral upon the said land. Under Part IV, the Government is entitled to enter upon the said land and to search for win work, dig, etc., and to convert and carry away any minerals, other than limestone, and for that purposed to carry out all operations necessary therefor. The Government is also entitled to use and lay roads, rail-roads, tramways etc., and the petitioner should not cause any hindrance or interference to those operations. The lessees of the Government in respect of other produce are also entitled to enter upon the land in question, and carry on operations in respect of any mineral, other than limestone, or other produce. The petitioner is also liable to pay the surface rent and water rate, as prescribed in Part V of the lease deed.

21. What is thus clear, is that in the leases before us, khas possession is not given, but only a right to enter upon the said land for the purpose of carrying on mining operations and all other operations and activities connected therewith, is given. Even the surface of the land which is allowed to be used is only to the extent necessary for the said mining purposes and other activities connected therewith. It is quite likely that, if any other mineral is found in the same area, another person may be granted a similar lease with respect to that mineral. There may be two or more persons holding a lease simultaneously with respect to the same area, but with respect to different minerals, each of them being granted same or similar rights as are contained in the petitioner's lease. In fact, the lease deed executed in favour of the petitioner is in the prescribed form, i.e., form K, prescribed by the Rules made under the Mines and Minerals (Regulation and Development) Act, 1957. In all other respects the terms and convenants are practically identical with the terms of lease in Tarkeshwar's case : [1979]3SCR18 .

22. What we have to consider is, whether the above distinctions make any difference to the application of the principle of Tarkeshwar's case : [1979]3SCR18 herein In other words, the issue for consideration is, whether, by virtue of the said distinctions, the lease deed in the case before us ceases to be a lease of immovable property, and does it become a licence, or an agreement to sell In this behalf, we may refer to the decision of the Calcutta High Court in Fala Krista Pal v. Jagannath Marwari : AIR1932Cal775 which has been cited with approval in Tarkeshwar's case : [1979]3SCR18 . In that case, it was observed that a mining lease is regarded everywhere in India as a lease, notwithstanding the fact that it may not, meticulously and strictly, satisfy in all cases, all the characteristics of a lease as defined in the Transfer of Property Act. It was further observed that, a coal mining settlement may be regarded as satisfying the requirements of section 105, Transfer of Property Act, and treated as a lease, because, under such settlement, some portion, however small, of the surface has to be used for carrying on the mining operations and taking the coal out. Another principle to be remembered is the one emphasized by the Supreme Court in paragraph 35 of Tarkeshwar's case : [1979]3SCR18 , which we have extracted hereinbefore, viz., that the 'right to enjoy immovable property' within the meaning of section 105, Transfer of Property Act, may also include the right to remove minerals from the land leased.

23. Another decision to be taken note of is the decision of one of us sitting singly (Jeevan Reddy, J.) in Associated Cement Companies Ltd. v. Government of Andhra Pradesh : AIR1981AP320 . This case arose under the Stamp Act. The question was, whether the lease deed executed by the petitioner - the very lease deed which is being considered by us herein - is a 'lease' as defined by the Stamp Act and requires to be executed on a stamp paper of the requisite value, or whether it is only a licence. The Associated Cement Company contended that it is not a 'lease' but only a 'licence', while the contention of the State was that is a 'lease', as defined by the Stamp Act. The expression 'lease' is defined in clause (16) of section 2 of the Stamp Act, in the following words :

' 'Lease' means a lease of immovable property, and includes also -

(a) a patta,

(b) a qabuliyat or other undertaking in writing, not being a counterpart of a lease, to cultivate, occupy, or pay or deliver rent for immovable property;

(c) any instrument by which tolls of any description are let;

(d) any writing or an application for a lease intended to signify that the application is granted.'

Since the said definition is only an inclusive one, reliance was placed upon the definition of 'lease' in section 105 of the Transfer of Property Act, for knowing the content and meaning of the said expression. So far as the expression 'licence' is concerned, reference was made to section 52 of the Indian Easements Act, 1882, because the said expression is not defined in the Stamp Act. The contents of, and the several clauses and stipulations in the lease deed were considered at quite some length and in the light of the several decisions, including the decision of the Supreme Court in Tarkeshwar's case : [1979]3SCR18 , it was held that the lease deed executed by the petitioner is a 'lease' within the meaning of clause (16) in section 2 of the Indian Stamp Act. When it was argued by the counsel for the lessee that any other person may also be granted a lease in respect of the very same area, in respect of another mineral, with the same rights and that therefore it cannot be called a lease of immovable property as ordinarily understood, it was observed : 'Probably it is so. But, so far as the present case is concerned, no such contingency has arisen and therefore, it is not necessary for me to consider what would be the position of the two lessees (for two different minerals) in such a case ........'

24. On an overall consideration of the several relevant factors and the principles of law referred to above, we are of that the opinion that the above two distinguishing factors should not make any difference to the general proposition recognised and accepted by the Supreme Court in Tarkeshwar's case : [1979]3SCR18 that, such leases have at all times been treated as leases of immovable property. Accordingly, we are of the opinion that the lease deed executed between the parties in the prescribed form (form K) is a lease of immovable property, and not a licence or an agreement to sell. Even in a case where the same land is leased out to two different persons in respect of two different minerals, both of them would be lessees with the same rights, obligations and liabilities.

25. We must now deal with the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. : [1977]2SCR149 , which constitutes the sheet-anchor of the Government's case. This case arose under the Sales Tax Act of Madhya Pradesh. Under a document described as a 'lease deed', executed in favour of the respondent-mills by the State of Vindhya Pradesh (which subsequently became a part of the State of Madhya Pradesh), the respondent was permitted on annual payment of royalty, to cut and remove bamboo and salai wood from the leased area; the period of lease was 20 years, later substituted as 30 years, with a provision for renewal. There was provision for payment of minimum royalty. The respondent had, under the terms of the deed, the right to make, for the purposes of its business, dams, cross streams, irrigation works, road, etc., in the leased area with the previous permission of the Government. Royalty was payable at the prescribed rate on every tonne of air-dry bamboo and salai wood actually extracted and removed from the leased area. The lessee was required to keep an account of all the bamboo and salai wood cut and removed by it, and was also obliged not to interfere with the surface of land, save and in so far as may be necessary, for carrying on its operations, and for purposes connected therewith. The rights, liberties and privileges which were reserved to the lessee under the document - it was stated specifically - shall extend only to bamboo and salai wood within the leased area, and the lessee was not to interfere with the working of the forest areas within the leased area, or with the rights, liberties and privileges of other contractors of the forest lands. The question arose whether the State of Madhya Pradesh is entitled to collect sales tax on the value of bamboos and salai wood cut and removed from the leased area. The Court held that the label given to the document as 'lease deed' is not conclusive but that the Court has to determine the true and real nature of the transaction after considering the several clauses of the deed, in the light of the definitions of 'lease', 'sale' and 'turnover'. The Court held that the transaction in that case, in truth and effect, was not a 'lease' but a contract for sale of timber. In this connection, the Court placed strong reliance upon the definition of the expression 'goods' occurring in section 2(g) of the Madhya Pradesh General Sales Tax Act, with particular emphasis upon the words underlined hereinafter :

'2. (g) 'goods' means all kinds of movable property other than actionable claims, newspapers, stocks, shares, securities or Government stamps and includes all materials, articles and commodities, whether or not to be used in the construction, fitting out, improvement or repair of movable or immovable property; and also includes all growing crops, grass, trees, plants and things attached to, or forming part of the land which are agreed to be severed before sale or under the contract of sale.'

The fact that the underlined portion played a significant part in answering the question, is evident from the following observation, which immediately follows the paragraph containing the definition of 'goods' :

'The key expressions which unlock the mystique of turnover-cum-sale of goods are the last inclusive limb of the clause 'also includes ... trees which are agreed to be severed under the contract of sale'. The crunch issue thus is whether the self-styled lease deed is in substance a contract of sale of timber.'

26. After examining the several clauses in the lease deed, the Court observed :

'The upshot of the whole transaction is that, for a price fixed, bamboos and salai wood are permitted to be removed from the forest of the appellant by the respondent. For the exercise of the right under this contract, certain necessary licences are conceded. It is made perfectly plain that the possession of the land qua land is not given, and there is a foolproof provision that the rights of the 'lessees' shall extend only to bamboos and salai woods within the leased area and nothing herein shall in any way be deemed to authorise the lessees to interfere with the working of the forest area ..... of other contractors of the said forest lands.'

27. The Court then posed the questions : 'Can there be a lease without exclusive possession of the lands Can there be a lease to A of lands when the only right is to cut certain species of timber above a certain height and according to stipulated conditions Can there be a lease of lands where similar right to cut timber from the same land co-exist in other contractors ?' They answered the above questions in the following words :

'There are more circumstances than these; but we need not be exhaustive, especially when we agree with the conclusion reached by the High Court.

We are satisfied that despite it description, the deed confers in truth and substance a right to cut and carry timber of specified species. Till the trees are cut, they remain the property of the owner, namely, the appellant. Once the trees are severed, the property passes. 'Royalty' is a feudalistic euphemism for the 'price' of the timber. We may also observe that the question before us is not so much as to what nomenclature would aptly describe the deed but as to whether the deed results in sale of trees after they are cut. The answer to that question, as would appear from the above, has to be in the affirmative.'

28. The learned Government Pleader contends that the reasoning of the Supreme Court applies with full force to the facts of the present case, because, according to him, the relevant clauses of the lease deed considered by the Supreme Court are practically identical with the clauses of the deed, concerned herein. He also raises the possibility of there being two or more lessees in respect of the same area for different minerals. There is no doubt that these are very pertinent questions; but, it must be remembered that the deed considered by the Supreme Court in this case was not a mining lease, but a forest lease, and the definition of 'goods' in the Madhya Pradesh General Sales Tax Act expressly included 'trees which are agreed to be severed under the contract of sale'. This definition, undoubtedly, influenced the decision of the Court to a significant extent, and induced the Court to come to the conclusion which it did. It may be of interest to note that this decision of the Supreme Court has been differently understood by two High Courts with respect to identical forest contracts. The Patna High Court in Titaghur Paper Mills Company Ltd. v. State of Bihar [1980] 45 STC 130 held, following the said decision, that an agreement for a long term bamboo lease on royalty payable on bamboo yield (containing practically identical clauses as in the case of Orient Paper Mills : [1977]2SCR149 is not a 'lease' but a 'licence' to enter upon the land for the purpose of cutting and removing timber and that, in substance, it was a contract of sale of bamboos. Here too, the definition of 'goods' in section 2(j) of the Bihar Sales Tax Act seems to have played a part. On the other hand, the Orissa High Court in Titaghur Paper Mills Company Ltd. v. State of Orissa [1980] 45 STC 170 held that a similar contract is a lease of immovable property, but not a licence or an agreement of sale. When the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. : [1977]2SCR149 was cited before it, the Orissa High Court declined to follow it on the ground that the said judgment 'has not taken into consideration any of the earlier judgments of the Supreme Court on the point'. Applying the principles of per incuriam as explained in Mamleshwar Prasad v. Kanahaiya Lal : [1975]3SCR834 , the Orissa High Court preferred to follow the earlier judgments of larger Benches of the Supreme Court in Smt. Shantabai v. State of Bombay : [1959]1SCR265 , Mahadeo v. State of Bombay : AIR1959SC735 and Board of Revenue v. A. M. Ansari : [1976]3SCR661 which, according to the said High Court, laid down a principle contrary to the one enunciated in the Orient Paper Mills' case : [1977]2SCR149 . So far as we are concerned, it is enough to state that the leases before us are mining leases which, according to the decision of the Supreme Court in Tarkeshwari's case : [1979]3SCR18 , have at all times been treated as, and must be treated as leases of immovable property, within the meaning of section 105 of the Transfer of Property Act.

29. For the above reasons, we hold that the leases executed by the petitioners herein, are leases of immovable property, and not either 'licences' or 'agreements to sell' the mineral concerned. Once we hold so, it would follow that there is no sale of the mineral extracted or mined by the petitioners, and that the mining and quarrying of the mineral is only a form of enjoyment of immovable property/land leased out. It does not matter that the entire land is not occupied or enjoyed at a given point of time; if is sufficient that a portion of the land, however small, is occupied by the lessees at a given point of time, no doubt for the purpose of the said mineral and for the purpose of operations connected therewith. Undoubtedly, some surface portion of the land mentioned in Part I of the lease deed, however small, is occupied by the lessees at any given point of time. Since there is no element of sale or purchase, section 6-A of the A.P.G.S.T. Act is not attracted.

30. It is true that the above finding is by itself sufficient to dispose of the matter; yet, we may briefily notice the true nature of the royalty amount payable by the lessees, since the counsel for both the parties have been at variance on this issue as well, before us. But, before we do that, we must make it clear that we do not wish to pronounce upon the meaning of the word 'royalty' generally speaking. We shall confine ourselves to the meaning of the said expression as obtaining under the mining leases, granted under the Mines and Minerals (Regulation and Development) Act, 1957 and that too, major minerals alone.

31. Our finding that the lease deed executed in form K prescribed by the Rules framed under the Mines and Minerals (Regulation and Development) Act is, in truth and substance, a lease deed and not a licence or an agreement to sell, should necessarily mean that the royalty amount is not the purchase price, or a sale price, as it may be called. It would more be in the nature of a lease amount, or rent, or the share of the owner in the produce, as the case may be. In Halsbury's Laws of England (Fourth Edition), the concept of royalty is stated thus in paragraph 236 (Volume 31, page 138) :

'A royalty, in the sense in which the word is used in connection with mining leases, is a payment to the lessor proportionate to the amount of the demised mineral worked within a specified period. A royalty is a true rent, and as such may be apportioned on a time basis. Usually, the royalties are made to merge in the fixed rent by means of a provision that the lessee, without any additional payment, may work, in each period for which a payment of fixed rent is made, so much of the minerals as would, at the royalties reserved, produce a sum equal to the fixed rent.

Reservations of royalties take different forms and as a lessor may reserve royalties in the form he considers most suitable or advantageous in any particular case, the questions which arise are questions of construction and the decided cases cannot be reduced to any principle generally applicable. Sometimes in colliery leases coal consumed in working was freed from royalty .......'

32. In 'Words and Phrases - Legally Defined', edited by John B. Saunders (Second Edition), Volume 4, at page 354, the following meanings are set out :

'A royalty, in the sense in which the word is used in connexion with mining leases, is a payment to the lessor proportionate to the amount of the demised mineral worked within a certain period [26 Halsbury's Laws (3rd Edn.) 435].

'Royalty' includes rent and any other reservation in respect of minerals by the acre, ton or otherwise [Railways Clauses Consolidation Act, 1845 as amended by the Mines (Working Facilities and Support) Act, 1923, s. 15].

'Royalty' (except in the expression 'tonnage royalty') includes a dead rent and any periodical or other payment for minerals got under a mining lease, and 'tonnage royalty' means a royalty calculated by reference to the amount of minerals so got from time to time, or of manufactured articles produced from such minerals, or by any similar method (Mineral workings Act, 1951, s. 41) .............'

33. Similarly, in 'Law Lexicon' edited by Justice T. P. Mukherjee and K. K. Singh, Vol. II (Third Edition), the expression 'royalty' is defined in the following words :

''Royalty' is used in secondary sense to signify that part of the reddendum which is variable and depends upon the quantity of minerals taken out. It is a payment made to the land owner by the lessee of the mine, in return of the privilege of working it. It is different from rent and is a kind of levy, in proportion to the minerals worked. Though its origin was rivelled in the concept of royal prerogative and sovereignty, in the present context of things, it is an impost by the Government .........'

34. The editors then refer to the decision of the Rajasthan High Court in Bherulal v. State of Rajasthan , wherein 'royalty' was defined as a payment to the owner of minerals for the right of working the same, based upon the quantum of produce. They also refer to the decision of the Madras High Court in Rajah Manyam Meenakshamma v. Commissioner of Income-tax : [1956]30ITR286(AP) where it was held that a mining lease is a 'lease' within the meaning of the Transfer of Property Act, and the price for granting the said right is collected as premium and royalty. It was further held that 'royalty' is rent in such a case.

35. To the same effect is the decision of the Punjab High Court in Shanti Saroop Sharma v. State . In this judgment, the learned Judges dealt with the meaning of the expression at some length, and held :

'From all this it is abundantly clear that the word 'royalty' has a well-recognised and defined meaning. As used in Mineral and Oil Operations it means share of produce or profit paid to the owner of the land for granted privilege of producing minerals thereform and excludes the concept of fee-simple title to minerals in place.'

36. The learned Government Pleader placed strong reliance upon certain observations in the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. : [1977]2SCR149 to the following effect :

'Royalty has a slight feudal flavour with a tell-tale demise relish, if we may say so, while price is a mercantile concept smacking of commercial relations ..... Royalty is feudalistic euphemism for the price of the timber ..........'

37. It must, however, be remembered firstly that, in the said decision, the Court did not attempt a definition of the said expression. It was a passing observation. They also did not refer to any decisions or texts on the meaning of the expression 'royalty'. Be that as it may, their observation cannot be said to be inconsistent with the decisions referred to above. Section 105 of the Transfer of Property Act calls the consideration for the grant of lease 'a price'. Section 105 reads as follows :

'105. A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service, or any other thing of value, to be rendered periodically or on specified occasions, the transferor by the transferee, who accepts the transfer on such terms.

The transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service, or other thing to be so rendered is called the rent.'

38. In our opinion, the expression 'price' occurring in the above observations should be understood in this light, and if so understood, there will be no conflict between the said observations and the earlier decisions referred to supra.

39. For the above reasons, we are of the opinion that the royalty amount paid is not sale price, or purchase price, as it may be called, and for this reason also section 6-A of the Andhra Pradesh General Sales Tax Act is not attracted.

40. The writ petitions are, therefore, allowed and it is held that no sales tax is leviable on the royalty amount paid by the petitioners to the State under section 6-A of the A.P.G.S.T. Act, inasmuch as it cannot be said that the mineral is purchased by the lessees from the State, nor can the royalty be called the purchase price, or sale price, as the case may be. There shall be no order as to costs. Advocate's fee : Rs. 200 in each.

41. The learned Government Pleader makes an oral request for leave to appeal to the Supreme Court under article 133 of the Constitution of India. We are of the opinion that this case does involve a substantial question of law of general importance which needs to be considered by the Supreme Court. The question is whether the mining leases are 'leases', and what is the nature of royalty In view of the decision of the Supreme Court in State of Madhya Pradesh v. Orient Paper Mills Ltd. : [1977]2SCR149 , this question has become rather important and is likely to arise often. A certificate shall, accordingly, issue.