IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 12.02.2007 CORAM : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN Writ Petition Nos.2359, 2580 and 2631 of 2006 (O.P.Nos.248, 46 and 47 of 2004) M/s.Tamil Nadu Magnesite Limited 5/53, Omalur Main Road Jagir Ammapalayam Salem - 636 302. .. Petitioner in all the W.Ps -Vs- 1. The State of Tamil Nadu represented by its Secretary Commercial Taxes Department Fort St.George Chennai - 600 009. 2. The Commercial Tax Officer Suramangalam Assessment Circle Salem. .. Respondents in all W.Ps Prayer: Original Petition in O.P.No.248 of 2004 is filed before t Tamil Nadu Taxation Special Tribunal seeking for the relief of calli for the records of the second respondent in T.N.G.S.T.No.2800193/199 2000 and set aside the impugned proceedings dated 31.7.2003 as the sa has been passed without considering the objections and documents fil by the petitioner without granting personal hearing as contemplat under the provisions of the TNGST Act and also against the principles natural justice. Original Petition in O.P.No.46 of 2004 is filed before the Tam Nadu Taxation Special Tribunal seeking for the relief of calling f the records of the second respondent in T.N.G.S.T.No.2800193/1999-20 and set aside the impugned proceedings dated 31.3.2003 as the same h been passed against the provisions of the T.N.G.S.T.Act and al unconstitutional as being beyond the State's taxing power under Entry in List II in the Seventh Schedule to the Constitution of India in far as the levy of tax under Section 7A and 3(4) of the T.N.G.S.T.Act. Original Petition in O.P.No.47 of 2004 is filed before the Tam Nadu Taxation Special Tribunal seeking for the relief of calling f https://hcservices.ecourts.gov.in/hcservices/ the records of the second respondent in T.N.G.S.T.No.2800193/2000-20 and set aside the impugned proceedings dated 31.3.2003 as the same h been passed against the provisions of the T.N.G.S.T.Act and al unconstitutional as being beyond the State's taxing power under Entry in List II in the Seventh Schedule to the Constitution of India in far as the levy of tax under Section 7A and 3(4) of the T.N.G.S.T.Act. The O.Ps have been transferred to this Court and re-numbered Writ Petitions on the abolition of the Tribunal. For Petitioner : Mr.P.Rajkumar For Respondents: Mr.Haja Nazirudeen,Spl.G.P.(Taxes) O R D E R The issue involved in all the above writ petitions is one and t same and the parties are also one and the same. The argument advanced the respective parties is also the same. On consent of the parties, t writ petitions are taken up today for disposal together. 2. The facts of the case are as follows: The petitioner, a Government of Tamil Nadu undertaking, is registered dealer with the second respondent herein both under the Tam Nadu General Sales Tax Act, (hereinafter, referred to as "the TNG Act") and Central Sales Tax Act, (hereinafter referred to as "the C Act"). The petitioner was originally granted temporary worki permission for a period of nine months from 26.9.1997 to 25.6.19 for mining magnesite and dunite over an extent of 177.96 hectares forest land in Salem Division subject to certain conditions by G (2D) No.53, Environment and Forests (FRX) Department dated 23.10.199 Subsequently, by Government Order in G.O.Ms.NO.234, Environment a Forest Department dated 6.8.1998, the Government of Tamil Nadu renew the lease in favour of the petitioner for the said area of 177 hectares (168.78 hectares of already broken up area and 9.882 hectar of to be broken up area) for a period of ten years from the date issue of said order on certain conditions. Pursuant to the grant lease, the petitioner also entered into Mining lease in Reserve Fore Agreement under Forest(Conservation) Act, 1980 with the District Fore Officer, Salem on 24.11.2002 agreeing all the conditions contain therein and the conditions in respect of payment of rent and royal reserved therein. 3. For the assessment year 1999-2000, the petitioner filed t monthly return in Form A1 under TNGST Act reporting their total a taxable turnover of Rs.2,61,85,450.48ps and Rs.2,58,28,274.32ps claimi exemption over a turnover of Rs.3,57,176.16ps. The petitioner's boo of accounts were called for and checked for framing of the assessment https://hcservices.ecourts.gov.in/hcservices/ the second respondent - the assessing officer. Upon checking of t returns filed by the petitioner with reference to the books of account the second respondent issued pre-assessment notice on 16.12.20 pointing out certain defects and omissions in the returns filed by t petitioner vis-a-vis their accounts. I am of the view that all t defects stated in the pre-assessment notice need not be reproduced the point over which the petitioner raised the issues in these wr petitions are in respect of defects stated in paragraph Nos.3, 6 and The defects pointed out in 3 and 6 and assessed to tax are the subje matter of W.P.Nos.2580 and 2631 of 20006 and that of paragraph No.7 the subject matter of W.P.No.2359 of 2006. The major and the only iss argued is in respect of the view taken by the second respondent paragraph No.3. 4. In paragraph No.3 of the notice dated 16.12.2002, the seco respondent has pointed out that the petitioner has excavated r magnesite, a taxable goods from the lands owned by the Government Tamil Nadu for a price consideration and consumed them in t manufacture of other goods for sale. Such consideration paid for t quantity of the mineral is the purchases consideration and a assessable to tax at 11 percent under Section 7A of the TNGST Act. T quantity quarried during the assessment year 1999-2000 has be arrived to 78,000 MTs and the value of the same was arrived Rs.8,10,20,845/-, which quantity and value are stated by the petition in schedule 25(15) of Annual report of the petitioner company. 5. The other defect pointed out in para 6 was that the petition has effected purchase of furnace oil for Rs.5,54,58,158.00 at t concessional rate of tax under the cover of Form XVII for use manufacture of finished goods. Out of the finished goods manufactured, the stock worth about Rs.7,57,695/- has been exported o of India, which made the petitioner ineligible for lower rate of t under Section 3(3) and 3(4). The petitioner is therefore liable to p the differential tax of one percent on the turnover by a formula und Section 3(4) of the TNGST Act viz., Total purchase value Value of goods } Purchase value of goods made against sent to an agent } of goods against Form XVII declarations or branch in } Form XVII declaration __________________ x other State and } and used in the goods Total sale value of the to other country } despatched to a place goods (including stock by export }outside the State eithe transfer, 'consignment } by branch transfer to a sales and export sales agent and in the good manufactured out of exported. Form XVII) https://hcservices.ecourts.gov.in/hcservices/ The differential tax at the rate of one percent under Section 3 of the TNGST Act has been arrived at in a sum of Rs.1,95,815/-. 6. The other proposal at para 7, which is the subject matter of t writ petition No.2359 of 2006 was that the dealer has incurred expens in a sum of Rs.60,63,294.00 towards packing and forwarding charges per Schedule 23 of Annual Report of the petitioner during the releva assessment year 1999-2000. According to explanation clause (ii) Explanation 2 of Section 2(r) of the TNGST Act, the amount for whi goods are sold shall include any sums charged for anything done by t dealer in respect of the goods sold at the time of or before t delivery thereof. The packing and forwarding charges in a sum Rs.60,63,294/- has not been assessed for tax. The same has to be tax at 11%. 7. Thus, among other things, by pointing out the above thr defects, the second respondent called upon the petitioner to file the objections, if any, to the proposal prior to 30.12.2002. The petition on 29.12.2002 filed their objections to the proposal. In respect the proposal of levying tax under Section 7A, the dominant objection the petitioner was that inasmuch as the taxable goods "raw magnesit was quarried from the petitioner's leasehold land and consumed petitioner's factory, the taxable goods was petitioner's own goods a there was no element of purchase and in that event of the matter, t respondents cannot invoke section 7-A of the TNGST Act. It was furth explained that the quantity and value shown in the Annual Report was t quantity and value of the mineral excavated from the leasehold land a the purchase value of the mineral purchased from M/s.India Magnesi Product Limited. The disclosure of such particulars in the Annu report was for the purpose of complying with the provisions of t Companies Act, 1956. 8. In respect of the proposal pointed out in paragraph No.6, it w explained by the petitioner that Section 3(4) is applicable only f despatch of goods to a place outside the State either by branch transf or to an agent. However, the sum of Rs.7,57,695/- represents value direct export sale made under form H. The above turnover was credited their account. Thus, the petitioner sought for deletion of th turnover. 9. The second respondent - assessing officer by his proceedin dated 31.3.2003 confirmed the proposals in respect of Section 7-A t and 3(4) determination by giving reason for overruling the objectio raised. In the assessment order, in respect of the proposal to inclu the turn over of packing and forwarding charges, nothing was state Subsequently, the respondent issued a notice dated 2.6.2003 informi the petitioner that in the assessment order dated 31.3.2003, t proposal to bring the turnover in a sum of Rs.60,63,294/- representi https://hcservices.ecourts.gov.in/hcservices/ the packing charges, loading charges paid to the contractor was omitt to be assessed, though in the pre-assessment notice dated 16.12.200 this was pointed out and objection has also been received. consideration of the objections already received, the assessing offic pointed out that the petitioner has not proved the fact that the sa value was inclusive of packing and forwarding charges and the proposa to assess the turnover of Rs.60,63,294/- has to be confirmed. further informed the petitioner in the same notice that in the event confirmation of the proposal of the said turnover, penalty should al be levied under Section 12(3)(b) of the TNGST Act and called for objection. The petitioner filed their objection on 9.6.2003 by annexi certain invoices to show that the packing and forwarding charg incurred by them has been included in the sale price. By proceedin dated 31.7.2003, the objection so raised has been rejected and the sa turnover has been brought to tax at 11 percent. That portion of t order is challenged in W.P.No.2359 of 2006. 10. The royalty paid, which has been regarded as purcha consideration and assessed to tax under Section 7-A, in respect of t assessment year 2000-2001, is put in issue in W.P.No.2631 of 2006. 11. It is contended on behalf of the petitioner that the seco respondent has no jurisdiction to levy purchase tax under Section 7-A the TNGST Act as the quarrying of raw magnesite was nothing but prof a prendre, which is an immovable property and beyond the State's taxi power. By Government Order in G.O.Ms.No.234 dated 6.8.1998, t petitioner became a lessee of the forest land for the purpose of mini magnesite. There was no sale by the State to the petitioner. The bas ingredient of purchase is absent in the case on hand. Hence, t invocation of Section 7A of the TNGST Act is not applicable. In order sustain his argument, the learned counsel relied on the case of t Supreme Court of India in the case of STATE OF ORISSA AND OTHERS V TITAGHUR PAPER MILLS CO.LTD. AND ANOTHER reported in (1985) 60 STC 2 and also THE INDIA CEMENT LIMITED VS. STATE OF TAMIL NADU reported AIR 1990 SC 85. 12. I heard the argument of the learned counsel on either side a perused the material on record. 13. From the facts above stated, what is assailed in these wr petitions is an assessment order passed by the statutory authority, w is having competence to pass an assessment order. Hence, all t objections can very well be raised before the appellate authority filing an appeal. However, the learned counsel for the petition contended that filing of an appeal under the statutory provision is exercise in futility as the present case is squarely covered by t decisions of the Supreme Court in the case of STATE OF ORISSA A OTHERS VS. TITAGHUR PAPER MILLS CO.LTD. AND ANOTHER reported in (198 https://hcservices.ecourts.gov.in/hcservices/ 60 STC 213 and also THE INDIA CEMENT LIMITED VS. STATE OF TAMIL NA reported in AIR 1990 SC 85. 14. I am afraid to accept the contention of the petitioner th the issue involved i.e., levy of purchase tax on the value of t mineral for which royalty has been paid in addition to the lease amou for the surface soil by the petitioner is covered by the above referr decisions of the Supreme Court reported in (1985) 60 STC 213 and A 1990 SC 85. The facts of the present case stand in a totally differe footing. 15. In the first case i.e., 60 STC 213, by notificatio S.R.O.Nos.372 and 373 dated 23rd May, 1977, issued under sections 3 and 5 of the Orissa Sales Tax Act, 1947, the Orissa State Governme declared that "standing trees and bamboos agreed to be severed" we liable to tax at a certain rate on the turnover of purchases with effe from 1st June, 1977. On 29th December,. 1977, as a consequence of t amendment of section 5 of the Act, the Government issued two oth similar notifications, S.R.O.Nos.900 and 901, in suppression of t notifications dated 23rd May, 1977. Some of the petitioners had tak settlement of forest areas for exploitation of bamboos and some othe had taken annual settlement for exploitation of timber and other fore produce. All of them filed writ petitions and contended, inter ali that by imposing purchase tax on "bamboos and standing trees agreed be severed", the State Government was not imposing any tax on "sale goods", that if there was any sale of goods, the State Government w taxing the same goods twice, once at the purchase point and again at t sale point, which was forbidden by law, and that, therefore, t notifications were beyond the competence of the State Government. T contention of Revenue, inter alia, was that bamboos and trees agreed be severed were different commercial commodities from bamboos and timb after they were felled and therefore the Government was competent to t them, both at the sale point and purchase point. In those factu circumstances of the case and having regard to the licence agreeme entered into between the parties, the High Court of Orissa at Cutta held that under the agreement relating to exploitation of timber a forest produce, persons taking auction were liable to reimburse t sales tax to the forest department. Trees which were agreed to severed and which were exigible to sales tax also became exigible purchase tax under the notifications. In common parlance, trees bamboos after they are severed are timber and bamboos respectively. T nature and character of the felled trees and bamboos do not change wh they are brought outside the forest for the purpose of sale. There is material distinction between the two. The trees and bamboos agreed to severed are commercially the same goods as the trees and bamboos. Th the trees which are otherwise immovable property are construed movable property because of the fact of impending severance. Therefor in the case of standing trees or timber, title can pass either befo severance or after severance and the intention of the parties is to https://hcservices.ecourts.gov.in/hcservices/ gathered from the documents. If the intention of the parties was th title should pass before severance, then the petitioners got the rig to cut and carry timber of specified species and, till the trees we cut, they remained the property of the Government. If the notificati purported to impose tax at that point, it would amount to taxing at point of time before title passed, while the trees still remained t property of the Government and the notifications would be imposing a t on an agreement to sell or a tax on immovable property. If the parti had agreed that the property in the trees should pass after severanc then what passed was "timber" of the trees, which was the subject-matt of tax at the sale point. Therefore, if the State Government purport to tax by the notifications on the purchase of "bamboos agreed to severed" or "trees agreed to be severed", then what it did was to tax agreement to sell or to tax the trees or bamboos at the purchase poi while the bamboos or trees were assessed at the point of sale also. Th standing trees are unascertainable goods and continue to be the proper of the Government until felled. Title to the trees would be transferr in favour of the petitioners only when after compliance of all t conditions of the agreement, the trees were felled or severed by the The notifications could not be construed to impose purchase tax standing trees or timber before severance which would amount to impost of tax on an agreement to sell and not on actual sale. Th bamboos which would come in future were also the subject-matter transfer but such transactions also amounted to profit a prendre a could not amount to sales or purchases of goods as envisaged under t Sale of Goods Act, 1930. That the notifications were accordingly ult vires the provisions of the Act. In the case of bamboo exploitati contracts, the notifications also amounted to impost of tax on profit prendre and, as such, were against the provisions of the Act. On t above said reasoning, the High Court quashed the notifications. 16. The Revenue carried the above matter on appeal to the Supre Court and the Supreme Court in 60 STC 213, after construing t agreement has held that by reason of the operation of the Fore Contract Rules, the property in bamboos passed to the company on after the bamboos were felled, taken to the depots at inspection poin and there checked and examined and thereafter removed from the contra area. The notifications did not have any application and the amou payable under the bamboo contracts were not exigible to purchase t in the hands of the company. That the bamboos contract was not contract for the sale of goods. The bamboo contract was not a lease the grant of an easement; it conferred upon the company a benefit arise out of land, namely, the right to cut and remove bamboos, whi would grow from the soil coupled with ancillary rights and was thus grant of a profit a prendre. Any attempt on the part of the Sta Government to tax the amounts payable under the bamboo contracts wou not only be ultra vires the Orissa Act but also unconstitutional being beyond the taxing power of the State Legislature under entry 54 List II of the Seventh Schedule to the Constitution of India. That https://hcservices.ecourts.gov.in/hcservices/ was not possible to view the bamboo contract as a composite contrac one an agreement relating to standing bamboos agreed to be severed, a the other, an agreement relating to bamboos to come into existence the future. It was one integral and indivisible contract not capable being severed. Holding thus, the Supreme Court reversed the judgme of the High Court on the point of constitutionality and vires b confirmed on the point of non-applicability of the provisions of t notification imposing tax on purchase of trees and bamboos agreed to severed. 17. In the case on hand, it is not a licence but it is a leas which is not disputed, but an admitted fact. As could be seen from t Government Order in GO.Ms.No.234 dated 6.8.1998, wherein lease has be granted to the petitioner for ten years on condition of execution statutory lease agreement as per the provisions of the Mines a Minerals (Development and Regulation) Act, 1957. The lease deed executed by the petitioner with District Forest Officer provided f payment of amount by the petitioner towards annual lease rent for t land. In addition thereto, the agreement further provided for payment amount towards royalty over the quantity of minerals quarried. For t sake of clarity, the relevant portions of the agreement are extract below: "PART - V - Rents and Royalties Reserved by This Lease. Fixed yearly rent 1. The lessee should pay lease rent from 6th day of Aug'98 every year 12 1/2 % of the market value fixed by the Sub- Registrar, Omalur, and the lease rent revised every three years. (As per G.O.Ms.No.272, Environment & Forest, dt.15.6.91). As per market value, the lease rent is Rs.21,81,316/- per annum. The lease rent will be fixed and payable as when the same is decided by the government. 2) The lessee should pay to the District Forest Officer, Salem Forest Division, Salem on the day of 1st April in each year Royalty on minerals despatched from the leased area at the rate specified below (as fixed in Govt. of India Gazette No.156, New Delhi, dt.11th April 1997) Rs.25/- (Rupees twenty five only) per tonne. ... 2(A) ....... PART - VI - Provisions relating the Rents and Royalties, Place of Payment. 1. The rents and royalties mentioned in Part-V of the Schedule shall be paid free from any more deductions to the Sub- Treasury at Salem or to such other officer and at such other place as the Government shall from time to time appoint. Provided Always and it is hereby agreed that Rs.1,000/- the balance standing to the credit of the lessee on account of the deposit made by the lessee on applying for this lease shall be retained and accepted by the Governor in satisfaction of the rents and royalties mentioned in Part-V until they reach that https://hcservices.ecourts.gov.in/hcservices/ amount. 2. .... 3. For the purpose of computing the said Royalties the lessee shall keep a correct account of the minerals produced and despatched. The accounts as well as the weight of the minerals in stock or in the process of export may be checked by any Officer authorised by the Government or the Central Government. PART - VII - The Covenants of the Lessee/Lessees, To pay rents, royalties, rates and taxes. The lessee shall pay the rents and royalty reserved by this lease at the times and in the manner provided in Parts V and VI and shall also pay and discharge all taxes rates, assessments, cess or royalities and impositions whatsoever being in the nature of public demands which shall from time to time be charged, assessed or imposed upon or in respect of the mines or works of the lessee or any part thereof by authority of the Central Government or that of the State Government or otherwise except demands for land revenue and shall also pay interest at the rate of six per cent per annum or that may be fixed from time to time on all arrears of such rents or royalty from the date whereon the same ought to be paid under these presents." 18. From the above, it is clear that the petitioner has to p lease, rent in respect of the land given in lease. Apart from that, t lease rent so reserved, the petitioner has also to pay royalty on t mineral despatched from the leased area at the rate of Rs.25/- p tonne. The rate of royalty is revisable as provided under the agreeme with reference to the statutory provisions of the Mines and Minera (Regulation and Development) Act, 1957. The lease amount is for t entire area but the royalty is payable with reference to the quantity the minerals mined by the petitioner. It is well settled that t mineral belongs to the Government. For the purpose