Powermesh Projects Limited vs. The State Of Madhya Pradesh

Held

The Court held that the impugned demand notice issued to the petitioners was not sustainable in law. The reasoning was based on the Supreme Court's pronouncements in the case of Mineral Area Development Authority and Anr. (supra), which clarified that royalty is a contractual consideration paid by a mining lessee to the lessor for the enjoyment of mineral rights, and the liability to pay royalty arises from the contractual conditions of the mining lease. The Court emphasized that royalty is distinct from tax. In the instant case, the e-tender notice specified an offset price of Rs. 125 per cubic meter, which was the minimum royalty payable. The Court found that the contract amount, as reflected in the Letter of Intent and agreement, included royalty. Therefore, the lessee was not liable to pay royalty separately. Rule 10(1) of the Sand Rules of 2019 stipulated that the tender would be awarded to the highest bidder annually, and the contractor would be liable to pay only the contract amount. Consequently, the Court concluded that the impugned demand notice did not specify the basis and reasons for charging royalty and other taxes under Rule 10(4) of the Sand Rules of 2019, rendering it unsustainable. The writ petitions were allowed, and the demand notice dated 13.10.2022 was quashed.

Facts

Multiple petitioners, including Vista Sales Pvt. Ltd., filed writ petitions challenging an order dated 13.10.2022 issued by the Chief General Manager, Madhya Pradesh State Mining Corporation Limited. This order levied a demand for royalty from the petitioners based on Rule 10(4) and amended Rule 27 of the Madhya Pradesh Sand (Mining, Transportation, Storage and Trading) Rules, 2019. The petitioners were successful bidders in tenders for sand mining leases. The impugned demand sought to recover significant amounts of royalty, as detailed in a table within the judgment, which showed contract amounts ranging from Rs. 27,27,27,557/- to Rs. 108,99,99,999/- and royalty recovery amounts ranging from Rs. 6,73,98,780/- to Rs. 43,32,15,844/-. The petitioners argued that the demand was illegal and arbitrary, particularly as they were already paying royalty as part of their bid amounts.

Key Issues

1. Whether the demand for extra royalty under Rule 10(4) and amended Rule 27 of the Sand Rules of 2019, levied by the Chief General Manager, Madhya Pradesh State Mining Corporation Limited, is valid and sustainable in law, considering the petitioners have already deposited the highest offered royalty as per their bid and executed agreements? (Question of law and fact, turning on the interpretation of the Sand Rules of 2019 and the terms of the mining leases). Petitioner's contentions: The petitioners argued that the impugned demand was illegal and arbitrary, violating Articles 14 and 19 of the Constitution. They contended that the demand was non-reasoned and passed without application of mind. They asserted that the contract amount already included the royalty, and they were paying the highest offered royalty as per their bids. They relied on the principle that royalty is a contractual consideration and not a tax, and that the demand was being made in an ongoing tender process after their highest bids were accepted. Revenue/State's contentions: The judgment does not explicitly record arguments made by the respondents/State. However, the impugned order was passed in terms of Rule 10(4) and amended Rule 27 of the Sand Rules of 2019, implying the State's reliance on these provisions for levying the demand.