M/S. National Aluminium Company ... vs State Of Orissa & Others
2021 Latest Caselaw 69 Ori

   IN THE HIGH COURT OF ORISSA AT CUTTACK

         WRIT PETITION (CIVIL) No. 10537 OF 2006

(An application under Articles 226 & 227 of the Constitution of
India.)


M/s. National Aluminium Company Ltd.           ......          Petitioner

                                Versus

State of Orissa & Others                       ....... Opposite Parties

Advocate(s) who appeared in this case by Video Conferencing
mode:-

For Petitioner                   :       Ms. Pami Rath, Advocate.

For Opposite Parties             :       Mr. P.K. Muduli, Addl. Govt.
                                         Advocate (for O.P. Nos. 1 to 3).


            CORAM : THE CHIEF JUSTICE
                    DR. JUSTICE B. R. SARANGI

                            JUDGMENT

5th January, 2021

Dr. S. Muralidhar, CJ.

1. The National Aluminium Company Ltd. (NALCO) has filed this writ petition challenging the notice dated 22nd August, 2005 under Annexure-8, issued by the Deputy Director of Mines (DDM), Koraput Circle (Opposite Party No. 3) calling upon it to pay a sum of Rs. 60,83,616/- towards interest on the delayed payment of differential royalty for the period from September,2000 to February, 2003, as well as subsequent further reminder dated 5th April, 2006 for payment of the said sum, failing which steps were to be taken to

realise the dues through certificate procedure under the Orissa Public Demands Recovery (OPDR) Act, 1962.

2. The background to the petition is that Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 ('the MMDR Act') provides for levy of royalties in respect of mining leases. In terms thereof, the holder of the mining lease has to 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 specified under the Second Schedule to the MMDR Act.

3. Under Section 9(3) of the MMDR Act, the Central Government has been empowered to issue a notification in the Official Gazette for the purpose of amending the Second Schedule so as to enhance or reduce the rate at which royalty shall be payable in respect of any mineral with effect from such date specified in the notification.

4. NALCO, a Government of India enterprise, set up its Alumina plant at Damanjodi for processing Bauxite to extract Alumina to be used in its smelter plant at Angul for final manufacturing of Alumina metal and allied products. It is stated that the Government of Odisha has granted NALCO a mining lease for extraction of Bauxite from the Panchpatmali Bauxite Mines for the above purpose. NALCO states that it was paying royalty for the Ore extracted from the said mines regularly at the rate of Rs. 41/- per MT of Bauxite.

5. On 12th September, 2000 the Central Government amended the Second Schedule to the MMDR Act and introduced a new rate in respect of Bauxite /Laterite as under:

"Zero point three five percent of London Metal exchange, Alumina metal price chargeable on the contained Alumina metal in ore produced."

6. It is stated that the expression 'zero point three five percent of London Metal exchange, Alumina metal price' failed to indicate the methodology for calculating the rate, particularly since the London Metal Exchange price has variable components that are subject to frequent changes. Further ambiguity was created by the expression 'on the contained Alumina metal in ore produced' since the Alumina metal found in the Bauxite ore also contained some moisture. The issue that was whether the aforementioned rates were for the mineral inclusive of the moisture content. NALCO states that as a result of the above ambiguities no intimation was been sent to it by the Opposite Parties raising a demand for the differential royalty pursuant to the amendment to Second Schedule to the MMDR Act.

7. It is further stated that on 23rd April 2001, the Government of India in the Ministry of Steel and Mines issued a clarification to the Government of Odisha as well as to NALCO indicating the methodology for calculating the royalty payable for Bauxite in terms of the amendment. Annexure-2 to the communication, which set out the formula for calculating the differential royalty payable, inter alia, gave a discretion to the State Government to choose daily, monthly, quarterly or annual settlement prices of World Metal Statistics which suits its periodicity of payment. It required the IBM circular dated 2nd November 1990 to be followed for determining the threshold values of Al2O3 and SiO2 to differentiate between mineral reject and mine waste. Further, the revised royalty calculation was to be based on the metal content in the ore produced. Thus the recovery

percentage of Alumina during extraction as well as moisture contain was not relevant. Royalty was to be calculated on the Aluminium metal content in the ore and not on the average quality of ore considered in the mining plan. The clarification set out a complete formula for calculation of royalty.

8. NALCO contends that despite the above clarification, the Government Odisha was uncertain as to the method of calculation and the exact quantum of demand. Accordingly a meeting was held on 7th June, 2002 where, inter alia, it was agreed that monthly returns would be submitted by NALCO on the 6th of every month. Thereupon, Opposite Party No.3 [Deputy Director of Mines (DDM, Koraput Circle)] shall serve upon NALCO the demand notice on the 9th of the succeeding month and payment would be released on or before the 15th of every month. This procedure was to commence from June, 2002. It was further decided that for the payment of arrears of the period September, 2000 to May, 2002, a separate meeting would be held. According to NALCO, the DDM, Koraput requested the Director of Mines, Odisha to provide a clear procedure for calculating royalty on Bauxite as per the revised rate. The changes required as a result of the clarification given to the DDM, Koraput was to be discussed at the end of June, 2002. In the circumstances, no demand of the revised royalty was raised on NALCO by the DDM, Koraput. In the meanwhile, NALCO kept paying the royalty at the old rate.

9. On 5th December 2002 NALCO again sent a reminder to the Opposite Parties in terms of the discussion in the meeting dated 7th June 2002. Inter alia, it was pointed out that the Opposite Parties

were suppose to sent the demand note to NALCO by 6th of every month, but it had not been done so till that date. On 4th March, 2003 the Director of Mines invited NALCO for a further discussion. This meeting was held on 13th March, 2003 in which a decision was taken that NALCO should pay royalty based on the report of the Government of India. On 25th March, 2003 NALCO paid the entire arrears of differential dues of Rs. 7,68,22,885/- for the period from 12th September,2000 till February, 2003 along with an advance royalty of Rs. 1,60,00,000/- for the period of March, 2003.

10. According to NALCO, it was surprised to see the impugned notice dated 22nd August, 2005 from the Opposite Party No.3 demanding interest on the arrears on differential royalty for the period September, 2000 to February, 2003. NALCO replied to the said demand notice on 6th November, 2005. Nevertheless, on 15th April, 2006 a further demand of the said sum was made. NALCO replied to the said demand on 18th April, 2006. The demand was repeated by the DDM, Koraput again on 17th July, 2006, to which NALCO replied on 31st July, 2006. Thereafter, the present petition was filed by NALCO seeking the reliefs as noted hereinbefore.

11. On 16th August,2006 while directing notice to issue to the Opposite Parties 1 to 3, this Court directed that no coercive action be taken against NALCO for realization of the amount pursuant to the impugned notices. The said interim order continued till 23rd July, 2019. Thereafter on 29th October, 2019 this Court, after noticing that the interim order was not extended beyond 23rd July, 2019, directed the Opposite Parties to comply with the consequential order subject to the result of the writ petition. Subsequently on 17th December

2019, while directing the State of Odisha to place on record the calculation sheets pursuant to the impugned demand notices, this Court directed that no recovery shall be made from NALCO pursuant thereto.

12. In the reply filed by the Opposite Party Nos. 1 to 3, the stand taken, inter alia, is that the variation in the content of AI2O3 reported in the returns filed by the NALCO could be reconciled only in the meeting held on 13th March, 2003. The Accountant General, Odisha in an inspection report No. 3/05-06 had pointed out that interest on the delayed payment of differential royalty had neither been paid by the lessee nor demanded by the Department. It was further indicated in the said report that the interest in the sum of Rs. 60,83,616/- was due on the delayed payment of differential royalty. The Opposite Parties state that pursuant to the said audit objection, the DDM, Koraput Circle raised the impugned demand. It is contended that the impugned demand is justified and that NALCO is liable to pay the demanded dues in terms of Rule 64A of the Mineral Concession Rules, 1960 and Rule 49 of the Mineral Concessions Rules, 2016.

13. This Court heard the submissions of Ms. Pami Rath, learned counsel for NALCO and Mr. P.K. Muduli, learned Additional Government Advocate for Opposite Parties 1 to 3.

14. The facts speak for themselves. It is clear that the Opposite Party Nos. 1 to 3 were themselves not sure as to how the royalty on Bauxite was to be calculated in terms of the amendment to the Second Schedule of the MMDR Act. It was only on 13th March, 2003 at the meeting held between the Opposite Parties 1 to 3 and NALCO,

that clarity was arrived at on the modalities for computation of royalty. On its part, NALCO had itself been reminding Opposite Parties 1 to 3 to raise the revised demand in terms of the amendment to the Second Schedule of the MMDR Act. Therefore, it is evident that the delay in making payment of the differential royalty on the part of the NALCO was attributable to the delay, if any, on the part of the Opposite Parties 1 to 3 in raising the demand. The facts reveal that it was the DDM, Koraput was kept seeking further clarification from the Director of Mines on this aspect. The procedure for calculating the royalties in terms of the clarification issued by the Government of India was finalized only at the meeting held on 13th March, 2003. Immediately thereafter on 25th March, 2003 NALCO paid the entire differential royalty. Therefore, there was no default on the part of NALCO in making the payment of revised royalty. In the circumstances, it appears to the Court that the demand of interest on the delayed payment of revised royalty for the aforementioned period between September, 2000 and February, 2003 is not legally justified.

15. Ms. Pami Rath, learned counsel for NALCO has placed reliance on the decisions of the Supreme Court of India in Pratibha Processors v. Union of India, (1996) 11 SCC 101; and E.I.D. Parry (India) Ltd. v. Assistant Commissioner of Commercial Taxes, Chennai, (2005) 4 SCC 779, in support of the plea that the impugned demand raised is arbitrary and contrary to law.

16. The Supreme Court in Pratibha Processors (supra) in paragraph 13 of the judgment clarified as under:

"13. In fiscal Statutes, the import of the words -- "tax", "interest", "penalty", etc. are well known. They

are different concepts. Tax is the amount payable as a result of the charging provision. It is a compulsory exaction of money by a public authority for public purposes, the payment of which is enforced by law. Penalty is ordinarily levied on an assessee for some contumacious conduct or for a deliberate violation of the provisions of the particular statute. Interest is compensatory in character and is imposed on an assessee who has withheld of any tax as and when it is due and payable. The levy of interest is geared to actual amount of tax withheld and the extent of the delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty- which is penal in character."

17. The above decision makes it clear that the interest is compensatory in character and can be imposed on a person who has withheld the legitimate dues. Otherwise, the demand of interest is not justified. On the facts of the present case, it is plain that there was no attempt by NALCO to withhold the payment of royalty. On the contrary, NALCO itself was reminding Opposite Parties 1 to 3 to raise a demand in terms of the amendment to the Second Schedule to the MMDR Act.

18. In E.I.D. Parry (India) Ltd. (supra), the Supreme Court held that the claim for interest under Section 24(3) of the Tamil Nadu General Sales Tax Act, 1959, in the absence of any assessment, even a provisional one, or a notice of demand, was not justified. On the same analogy, unless a demand is raised, the question of paying interest for the period prior thereto would not arise.

19. For the aforementioned reasons, this Court finds the impugned demand to be unsustainable in law. Accordingly, the impugned

notice dated 22nd August, 2005 (Annexure-8) and subsequent reminder dated 5th April, 2006 (Annexure-10) are hereby quashed.

20. In the result the writ petition is allowed. However, there shall be no order as to costs.

21. As restrictions are continuing due to COVID-19 situation, learned counsel for the petitioner may utilize the soft copy of this judgment available in the High Court's official website or print out thereof at par with certified copies in the manner prescribed, vide Court's Notice No.4587 dated 25.03.2020.

............................

S. Muralidhar Chief Justice

......................

B.R. Sarangi Judge

5th January, 2021.

//A.Dash, Secretary//