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Whether State has Power to Levy Seignorage in respect of Lands leased out for Mining Purposes ?

Land Conservancy Act, 1957 (Kerala) - Ss. 5 & 6 - Land Conservancy Rules, 1958 (Kerala) - Rr. 14 to 26 - Mines and Minerals (Development & Regulation) Act, 1957 - Whether the State Government has the power to levy seignorage in respect of its lands that have been leased out for mining purposes?


The levy of seignorage in the instant cases is not, however, a levy in respect of mineral rights and hence, in my view, does not transgress into the field of mineral development that is occupied by the MMDR Act and Rules. Firstly, the levy is one that is authorised under the Kerala Land Conservancy Act, which is an enactment traceable to Entry 18 of List II in the Seventh Schedule to the Constitution, that deals with “Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization”. Secondly, the levy is confined to minerals removed from Government lands alone. It is not a general levy in respect of mineral rights granted by the State Government and is not levied or collected in cases where mining rights are granted in respect of lands under private ownership. This makes it in the nature of a prerogative levy. Thirdly, the object of the levy and the essential purpose which it is intended to achieve is to compensate the State Government for the loss of the “intrinsic worth” of its land, consequent to a depletion of its mineral wealth; and Lastly, the computation of the levy is based on the quantity of mineral actually removed from the land, and not on the dead rent or royalty found payable in terms of the MMDR Act and Rules. The above aspects, in my opinion, serve to distinguish the levy from a levy of royalty, and confer on it the legitimacy and validity that would enable it to survive the constitutional challenge raised in these writ petitions.
IN THE HIGH COURT OF KERALA AT ERNAKULAM
A.K. JAYASANKARAN NAMBIAR, J.
W.P.(C).NO.13549 OF 2014, W.P.(C).NO.39371 OF 2017, CONT. CASE (C) NO.39 OF 2018 & W.P.(C).NO.7511 OF 2018
Dated this the 3rd day of April, 2018


PETITIONER(S)
1 M/S CRYSTAL GRANITES LIMITED CHULLY P.O.-683581, ANGAMALY, ERNAKULAM DISTRICT, REPRESENTED BY THE MANAGING DIRECTOR, SRI.GEORGE ANTONY, RESIDENT OF KUREEKKAL HOUSE, KIZHAKKAMBALAM, KUNNATHATHUNAD, ERNAKULAM DISTRICT.
2 M/S.G.K.GRANITES, CHULLY P.O.-683581, ANGAMALY, ERNAKULAM DISTRICT, REPRESENTED BY THE MANAGING PARTNER, SRI.GEORGE ANTONY, RESIDENT OF KUREEKKAL HOUSE, KIZHAKKAMBALAM, KUNNATHATHUNAD, ERNAKULAM DISTRICT.
BY ADVS.SRI.N.JAMES KOSHY SRI.T.SANJAY 
RESPONDENT(S)
1. STATE OF KERALA REPRESENTED BY THE SECRETARY, DEPARTMENT OF MINING, GOVERNMENT SECRETARIAT, THIRUVANANTHAPURAM-695001.
2. THE COMMISSIONER OF LAND REVENUE, COMMISSIONERATE OF LAND REVENUE, THIRUVANANTHAPURAM-695 001.
3. THE TAHSILDAR, TALUK OFFICE, ALUVA, ERNAKULAM DISTRICT-683101.
4. THE GEOLOGIST, DEPARTMENT OF MINING AND GEOLOGY, DISTRICT OFFICE, CIVIL STATION, ERNAKULAM, KAKKANAD, KOCHI-682030.
R1-R4 BY SRI. RANJITH THAMPAN, ADDL. ADVOCATE GENERAL
J U D G M E N T 
As these writ petitions involve a common issue, they are taken up together for consideration and disposed by this common judgment. For the sake of convenience, the reference to facts and exhibits is from W.P.(C).No.13549/2014.
2. The petitioners in W.P.(C).No.13549/2014 are a private limited Company and a partnership firm respectively, both of whom have obtained quarrying leases from the State Government for quarrying granite metal, from lands belonging to them as well as from Government puramboke lands. It is not in dispute that in the orders passed by the Director of Mining and Geology granting the petitioners the quarrying leases, there is an express clause that obliges the petitioners to pay to the Government the seignorage payable, as and when demanded by the Government. The petitioners had accepted the said grant in their favour and commenced mining activities on the lands in question, with due compliance with the procedures mandated under the Mines and Minerals (Development & Regulation) Act, 1957 (hereinafter referred to as the 'MMDR Act') and Rules. The petitioners have also been paying the Royalty and other charges due to the Government, as mandated under the said Act and Rules. The petitioners approached this Court through the above writ petition when they were served with demand notices (Exts.P12 and P13) demanding payment of seignorage, as contemplated under the Kerala Land Conservancy Act and Rules. It is the case of the petitioners that, although the payment of seignorage was a condition in the grants made to them over Government lands, the State Government cannot lawfully demand seignorage in respect of lands covered by mining leases issued in terms of the MMDR Act and Rules. It is contended that, the levy of seignorage on the quantity of metal mined from the Government lands, over and above the Royalty amounts already collected by the Government on the said quantity of metal, would tantamount to an excessive collection of Royalty that is not permitted under the MMDR Act and Rules. In the alternative, the petitioners also dispute the quantification of seignorage, in the demand notices issued to them, stating that there are calculation errors in the said notices.
3. In W.P.(C).No.39371/2017, the challenge is against an order dated 28.11.2017 of the District Collector that refused to issue to the petitioner therein, a No Objection certificate [NOC] that was sought by the petitioner for supporting an application for the renewal of his mining lease. By the impugned order (Ext.P8), the District Collector held that the NOC could not be issued unless the petitioner had discharged his existing liability, as regards seignorage, to the Government. By an interim order dated 15.12.2017 passed in the said writ petition, this Court had directed the District Collector to consider the application for NOC without insisting on payment of seignorage, pending disposal of the writ petition. Alleging non-compliance with the directions in the said interim order, the petitioner has since instituted a Contempt of Court case – Cont. Case (Civil) No.39/2018. W.P.(C).No.7511/2018 is one filed by the same petitioners as in W.P.(C) No.13549/2014 and the challenge therein is against a subsequent demand notice for seignorage (Ext.P18), issued to them.
4. Counter affidavits and additional affidavits have been filed on behalf of the State Government, where the stand taken is that under Sections 5 and 6 of the Kerala Land Conservancy Act, a permission is required for any person to occupy Government land and further, if any material is removed from the Government land, then the Government is entitled to be adequately compensated for the same. Reference is also made to Rules 14 to 26 of the Kerala Land Conservancy Rules to contend that the statutory provisions do provide for the recovery of seignorage by the Government. It is stated that, in accordance with the statutory provisions, the Government has vide SRO No.59/2015 issued a notification prescribing the rates at which compensation is payable for articles of value removed from Government property. Although the rate of seignorage for building stone, other than laterite, was initially fixed @ Rs.200/- per MT, the rate was subsequently reduced to Rs. 50/- per MT, by a notification dated 18.02.2016. A challenge to the validity of the said notification is stated to have been repelled by this Court. The quantification of the demand against the petitioners is also stated to have been correctly done.
5. I have heard Adv. Sri. James Koshy, the learned counsel for the petitioners and the Additional Advocate General Sri. Ranjith Thampan for the State Government in these writ petitions. A preliminary issue raised on behalf of the State Government in this case concerns the locus standi of the petitioners to challenge the levy of seignorage under circumstances where they had accepted the grant on a specific condition that they would pay the seignorage due to the Government. It is contended that, having accepted the mining leases on specific terms, and worked the mines on the strength of the said mining leases, the petitioners could not challenge a levy of seignorage when a demand was raised on them in accordance with the terms of the grant. While the said contention raised by the State Government is certainly a persuasive one, it is my view that the maintainability of a challenge against the levy of seignorage will depend ultimately on whether or not the State Government has the power to levy seignorage in respect of its lands that have been leased out for mining purposes, the regulation of which activity is in terms of the MMDR Act and Rules and where under, the State Government collects a Royalty on the mined articles that are removed from the land. If, it is held that the Government has no power to levy seignorage in such cases, then the mere fact that the grant issued to the petitioners contains a stipulation for payment of seignorage, will not enable the State Government to levy or collect such amounts lawfully. In such cases, it would certainly be open to the petitioner to impugn a demand as and when it is made. If, on the other hand, the levy is one that can be validly made by the Government, then the stipulation in the grant to pay such amount, would estop the petitioners, who had unconditionally accepted the grant on those terms, from impugning the demand.
6. The issue that has now to be examined, therefore, is whether the State Government has the power to levy seignorage in respect of its lands that have been leased out for mining purposes? As already noted, the regulation of mining activities is in terms of the MMDR Act and Rules and, under the said statutory provisions, the State Government collects a Royalty on the mined articles that are removed from the land. This is over and above the surface rent (and dead rent, where applicable) that it is permitted to collect under the said provisions. Can the State Government, therefore, collect further amounts, by way of seignorage, in respect of the lands from which Royalty and other amounts have been earned? To answer this question, one must first examine the extent of regulatory power that is conferred on the Central and State Governments under the MMDR Act and Rules.
7. Under the Constitution of India, the management of mineral resources is left with both the Central Government and the State Governments in terms of List I Entry 54 and List II Entry 23. The State Legislatures enjoy the power to enact legislation on the topic of “mines and mineral development”, but the said power is restricted by the extent to which the Union Government has taken over the regulation and development of minerals through legislation incorporating a declaration that states that the regulation of mines and development of minerals should, in public interest, be under the control of the Union. It has been clarified through decisions of the Supreme Court that, a mere declaration by the Union Government, without anything more, is not sufficient to denude the State Legislature of its legislative powers. The power will be eroded only to the extent control is assumed by the Central Government, pursuant to such a declaration, through “positive” regulation and development. (See: Orissa Cement Ltd v. State of Orissa – [1991 (Supp) 1 SCC 430]; Monnet Ispat and Energy Limited v. Union of India & Ors – [2010 (13) SCC 1]). The Central legislation holding the field is the Mines & Minerals (Development & Regulation) Act, 1957 and the declaration, that it is expedient in public interest that the regulation should be under the control of the Union, is contained in Section 2 of the said Act. Under Section 15 of the MMDR Act, the State Government is empowered to make Rules in respect of minor minerals and, it is thus that, in the State of Kerala, the Kerala Minor Mineral Concession Rules, 2015 and the Kerala Minerals (Prevention of Illegal Mining, Storage and Transportation) Rules, 2015 were framed. These rules regulate the mining activity in respect of minor minerals in Kerala.
8. An incidental aspect as regards the ownership of mines and minerals within the territorial limits of the State may also be noticed inasmuch as they have a bearing on the right of the State Government to collect Royalty in respect of the minerals that are mined. Wherever ownership has been vested in it through statutory provisions, the State Government concerned is the owner of the mines and minerals, and it is empowered to deal with them as provided under the MMDR Act. In the State of Kerala, the erstwhile land tenures (Landlord Tenures, Jenmom rights and Ryotwari tenures) in the State recognised an ownership right in the owner of the land, to the soil as well as the minerals beneath. The said ownership rights over mines and minerals continued to vest with the owner of the land even after the enactment of the Constitution, since Article 294 provided for the succession by the Union of India or the corresponding State Government, as the case may be, of only the property that vested in the British Crown immediately before the commencement of the Constitution. The rights of the landowners, over the mines and minerals, were transferred to the State Government through a statutory vesting at the time of abolishing the system of land tenures. In the Malabar area, however, there was no law enacted subsequent to the coming into force of the Constitution, which deprived the ryotwari landholders of their right to the subsoil or minerals. Thus, in the Malabar Area of the State, the said ryotwari landholders continue to own the sub-soil and mineral wealth in their respective lands. (See:Thressiama Jacob & Ors. v. Geologist – (2013) 9 SCC 725
9. In the instant cases, as already noticed, the petitioners impugn the demand notices issued to them for payment of seignorage. It is not in dispute that they carry on the mining activities both in private lands and Government lands that are covered by the mining leases issued to them. It is also not in dispute that, in respect of the minerals that are mined and removed from the said lands, they pay Royalty to the State Government, the latter being the owner of the minerals, in terms of the statutory provisions. The demand for seignorage is made only in respect of the Government lands that are covered by the mining leases issued to the petitioners. It is the stand of the State Government that the demand of seignorage is as per the provisions of the Kerala Land Conservancy Act and Rules. The relevant provisions of the said Act and Rules are as under: 
The Kerala Land Conservancy Act: 
Sections 5 and 6: 
5. Land which is the property of Government not to be occupied without permission.- [(1)] From and after the commencement of this Act, it shall not be lawful for any person to occupy a land which is the property of Government, whether a poramboke or not, without permission from the Government as may be empowered in this behalf.
[Explanation:- For the removal of doubts it is hereby declared that the erection of any wall, fence or building or the putting up of any overhanging structure or projection (whether on a temporary or permanent basis) on or over any land aforesaid shall be deemed to be occupation of such land.] 
(2) Notwithstanding anything contained in subsection (1), it shall not be lawful for any person to erect or cause to erect any wall, fence or building or put up any overhanging structure or projection (whether on a temporary or permanent basis) on or over any land referred to in sub-section (1) except under and in accordance with the terms and conditions of a licence issued by the Government or such officer of the Government as may be empowered by them in this behalf.
(3) Any person desirous of obtaining a licence referred to in sub-section (2) may apply to the Government or to such officer of the Government as may be empowered by them in this behalf for an appropriate licence.
(4) An application under sub-section (3) shall be in such form and shall contain such particulars and shall be accompanied by such fee, as may be prescribed by rules made under this Act.) 
6. Earth, metal, laterite, lime-shell, etc., not to be removed from land which is property of Government without permit .- (1) It shall not be lawful for any person to destroy, remove or appropriate for himself earth, (sand) metal, laterite, lime-shell or such other articles of value as may be notified by the government from any land which is the property of Government, whether a poramboke or not, except under and in accordance with the terms and conditions of a permit issued by the Government or such officer of the Government as may be empowered in that behalf and on payment of compensation at the rate prescribed under sub-section (2).
(2) The Government may, from time to time, by notification in the Gazette, prescribe the rate at which compensation shall be payable for earth, (sand) metal, laterite, lime-shell or other notified articles of value destroyed, removed or appropriated from land which is the property of Government.
(3) Whoever unauthorisedly destroys, removes or appropriates for himself metal, laterite, lime-shell or other notified articles of value from any land which is the property of Government, whether a poramboke or not, shall be liable to pay such fine not exceeding fifty rupees as may be imposed by the Collector and shall also be liable to pay by way of damages an amount equivalent to the compensation which would have been payable if sub-section (2) were applicable thereto.
[(3A) Whoever unauthorisedly destroys, removes or appropriates for himself earth or sand from any land which is the property of Government, whether a poramboke or not, shall be liable to pay such fine- 
(a) not exceeding one hundred rupees in the case of a first offence; or 
(b) not exceeding two hundred rupees in the case of a second or subsequent offence as may be imposed by the Collector and shall also be liable to pay by way of damages an amount equivalent to the compensation which would have been payable if sub-section (2) were applicable thereto.
(3B) Whoever abets the commission of an offence punishable under sub-section (3A) shall be liable to pay such fine,- 
(a) not exceeding one hundred rupees where the offence abetted is first offence; and 
(b) not exceeding two hundred rupees where the offence abetted is a second or subsequent offence; as may be imposed by the Collector].
(4) The Government may remit in whole or in part the (compensation, fine or damages) payable under this section,- 
(a) in favour of (any agriculturist or agricultural labourer) if the earth (sand) metal, laterite, lime-shell or other notified articles of value destroyed, removed or appropriated is for bona fide agricultural purposes, or 
(b) in favour of a co-operative society.
[Explanation:- For the purpose of clause (a) "agricultural labourer" means a person whose principal means of livelihood is the income he gets as wages in connection with the agricultural operations he performs.) 
The Kerala Land Conservancy Rules: 
Rules 14 to 26: 
14. Application for permission to quarry from any land which is the property of Government whether a poramboke or not shall be made to the Tahsildar of the Taluk in which the land is situated. The application shall describe the name of the Village, the survey number of the land and variety and approximate quantity of article required.
Exception :- In respect of lands vested in Municipal Councils and Corporations or in respect of rivers, estuaries, canals or backwaters within such Municipal or Corporation limits, the permits in respect of petty unobjectionable encroachments and also for the removal of the articles to be quarried may be granted by the Executive Authorities of the Local Bodies concerned subject to the provisions of the Municipal Act for the time being in force in the area.
15. The Tahsildar shall, on receipt of the application, inspect the land and see whether the application can be granted without prejudice to the interests of the Government. He shall also satisfy himself, if necessary in consultation with the Public Works Department, that the article is not required for any Government works.
16. If the land to which the application relates adjoins any public road under the control of the P.W.D. the application shall be forwarded to the local P.W.D. Sub Division Officer for his opinion and to mark out the road limit beyond which quarrying may be done.
17. If the Tahsildar finds on enquiry that the application can be granted, he shall issue a permit in Form 'E' appended to these rules, to the applicant on recovery of the prescribed seigniorage fee and on such special conditions as he may deem fit to impose.
18. When a permit under Rule 17 is issued the Tahsildar shall forward a copy of the permit to the Village Officer who shall point out to the holder of the permit the spot or place at which the quarrying or removal is permitted. A sketch of the site should be prepared in which the approximate location or dimensions of the proposed quarry should be specified and got signed by the permit holder.
19. The permit holder may quarry and remove the article from the land pointed out by the Village Officer under Rule 18 strictly according to the specifications made in the sketch and any unauthorised quarrying shall render the party liable for action under the Act and for the seigniorage for the article quarried in excess of the quantity allowed in the permit.
20. Quarrying by contractors engaged by the Government Departments will be free of seigniorage fee if the cost of such articles has not been taken into account in working out the date for the valuation of work covered by the contract. The contractors shall, for this purpose, produce a certificate to that effect from any Gazetted Officer of the Department under whose con-trol the work is to be executed.
Note:- It may be necessary for the Government Departments, in emergent cases to allow contractors engaged for works to commence quarrying before obtaining the formal sanction of the Tahsildar concerned. In such cases an officer competent to sanction estimates or accept the tenders should intimate to the Tahsildar of the Taluk within 7 days of the issue of sanction particulars about- 
(1) The name and address of the contractor and the time allowed for quarrying; 
(2) The name of Village and Survey number of the lands where from quarrying is to be made; 
(3) Nature and approximate quantity proposed to be quarried; and 
(4) Whether any deduction of quarrying fee has been made from the rates allowed to the contractors. A formal application should also be obtained from the Contractor and forwarded to the Tahsildar for disposal in due course.
21. Quarrying and removal of clay or sand for bonafide agricultural purposes shall be free of compensation prescribed under sub-section (2) of Section 6 of the Act.
22. Quarrying from any land which is the property of Government is prohibited within a radius of 10 feet from any Survey mark.
23. If, as a result of quarrying operations, and any survey mark on the land is found to have been interfered with, or placed out of position, it shall be competent for the Tahsildar to have the survey mark repaired or renewed by the person responsible. If he fails to do so, the Tahsildar shall have the survey mark renewed and all incidental charges together with a penalty of Re.l for survey mark recovered from such person.
24. Compensation prescribed under sub-section (2) of Section 6 of the Act repair and renewal charges of survey marks, penalty and all incidental charges levied under these rules shall be recovered in the same manner as arrears of Land Revenue.
25. A permit issued under these rules shall be valid only for six months from the date of issue, provided however that the Tahsildar shall have powers to renew the permit on the application of the permit holder, for a further period of six months, if sufficient grounds exist.
26. After the expiry of the period of the permit the Village Officer shall return the sketch under Rule 18 and the copy of the permit to the Tahsildar adding a certificate of the removal of the article and of the amount realised as compensation prescribed under sub-section (2) of Section 6 of the Act.
10. The legislative power of the State to enact the Kerala Land Conservancy Act is traceable to Article 246 of the Constitution read with Entry 18 of List II in the Seventh Schedule thereto, that deals with “Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization”. A separate Entry – Entry 49 of List II – deals with “Taxes on Lands and Buildings”. These entries are distinct and different from Entry 23 of List II that deals with “Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union” and Entry 50 of List II that deals with “Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development”.
11. Although learned counsel for the petitioners would vehemently contend, based on a plethora of judgments of the Supreme Court that, the demand and collection of Royalty from them, being a right conferred on the State Government in terms of the MMDR Act and Rules, the State Government cannot demand seignorage over and above the said Royalty amounts without transgressing into a field occupied by the Central legislation, I am of the view that the said contention is based on a misunderstanding of the true character of the levy of seignorage, as opposed to a levy of Royalty. While the term “Royalty” originated in England, where it was used to designate the share in the production reserved by the crown from those to whom the right to work mines and quarries was granted, and today refers to the share of the product or profit reserved by the owner for permitting another to use the property, “Seignorage” refers to something that is claimed by a sovereign or feudal superior as a prerogative (See: Concise Oxford Dictionary). It is trite that the State Government cannot impose a levy in respect of mineral rights granted in the State, which is over and above the royalty amounts already permitted to be collected in terms of the MMDR Act and Rules. (See: India Cement Ltd & Ors v. State of Tamil Nadu & Ors – [(1990) 1 SCC 12]; R. Pampapathi v. State of Karnataka – [ILR 1997 Kar 1510]; KCP Limited v. State of Andhra Pradesh – [AIR 1990 AP 314]). The levy of seignorage in the instant cases is not, however, a levy in respect of mineral rights and hence, in my view, does not transgress into the field of mineral development that is occupied by the MMDR Act and Rules. Firstly, the levy is one that is authorised under the Kerala Land Conservancy Act, which is an enactment traceable to Entry 18 of List II in the Seventh Schedule to the Constitution, that deals with “Land, that is to say, rights in or over land, land tenures including the relation of landlord and tenant, and the collection of rents; transfer and alienation of agricultural land; land improvement and agricultural loans; colonization”. Secondly, the levy is confined to minerals removed from Government lands alone. It is not a general levy in respect of mineral rights granted by the State Government and is not levied or collected in cases where mining rights are granted in respect of lands under private ownership. This makes it in the nature of a prerogative levy. Thirdly, the object of the levy and the essential purpose which it is intended to achieve is to compensate the State Government for the loss of the “intrinsic worth” of its land, consequent to a depletion of its mineral wealth; and Lastly, the computation of the levy is based on the quantity of mineral actually removed from the land, and not on the dead rent or royalty found payable in terms of the MMDR Act and Rules. The above aspects, in my opinion, serve to distinguish the levy from a levy of royalty, and confer on it the legitimacy and validity that would enable it to survive the constitutional challenge raised in these writ petitions.
12. Having found the levy of seignorage to be valid, I also find force in the contention of the learned Additional Advocate General that the petitioners are estopped from challenging the demand of seignorage, especially when the obligation to pay seignorage, as and when demanded, is an express condition in the grant of mining leases obtained by them. The petitioners cannot deny their liability to pay seignorage after having obtained a grant with the said condition and carried on their mining activities pursuant thereto.
13. I find, however, that the petitioners have raised an alternate contention disputing the quantification of the demand. The learned Additional Advocate General also was not able to explain the basis of the quantification shown in the demand notices issued to the petitioners. Under the said circumstances, while dismissing the writ petitions in their challenge against the demand of seignorage, I quash the impugned demand notices for the limited purposes of enabling the respondents to correctly quantify the demand against the petitioners, after considering their objections to the computation now proposed. The respondents shall re-quantify the demand against the petitioners, after hearing them, within a period of six weeks from the date of receipt of a copy of this judgment.
The writ petitions are disposed as above, and the Contempt Case closed in the light of this judgment.

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