IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE FOURTH DAY OF NOVEMBER TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE P.V.SANJAY KUMAR WRIT PETITION NO.18860 OF 1997 Between: M/s.N.C.L.Industries Limited, 7th Floor, Raghavaratna Towers, Chirag Ali Lane, Hyderabad. ..... PETITIONER AND 1 State of Andhra Pradesh, Department of Revenue, Represented by its Secretary, Secretariat, Hyderabad. 2 Director General of Registration & Stamps, Government of Andhra Pradesh, Golkonda X Roads, Hyderabad. 3 District Registrar, Nalgonda District, Nalgonda. .....RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the aﬃdavit ﬁled herein the High Court will be pleased to issue a Writ or Writs more particularly one in the Nature of Mandamus declaring the action of the third respondent in seeking to levy stamp duty on lease deed dated14-10-1980 basing on royalty and cess paid between 1983-1996 as illegal, arbitrary and unconstitutional and set aside Memo No.169/SA/DR/96, dated 02-04-1997. Counsel for the Petitioner : MR.B.ADINARAYANA RAO Counsel for the Respondents: GP FOR REVENUE The Court made the following : ORAL ORDER: The petitioner challenges the action of the District Registrar, Nalgonda District, the 3rd respondent herein, in seeking to levy stamp duty on the petitioner’s lease deed dated 14.10.1980 on the basis of the actual royalties and cess paid between the years 1983 and 1996 and seeks a consequential direction to set aside the Memo No. 169/SA/DR/96 dated 2.4.1997, whereby the 3rd respondent raised a demand for payment of deﬁcit stamp duty quantified at Rs.2,76,020/-. The facts of the case are not in dispute. The petitioner was granted a mining lease by the Industries and Commerce Department of the State under G.O.Ms.No.280 dated 06.06.1980. The lease was for a period of 10 years covering an extent of 208.9 hectares in Mettapalli of Nalgonda district. As required by Rule 31 of the Mineral Concession Rules, 1960 (for short ‘the Rules of 1960), a lease deed was executed on 14.10.1980 in Form-K appended to the said Rules. The petitioner paid stamp duty upon the said lease deed at that time as per the provisions of the Indian Stamp Act, 1899 (for short ‘the Act of 1899’). While so, it appears that the 3rd respondent undertook an inspection of the records in the oﬃce of the Assistant Director, Mines and Geology, Nalgonda district, under Section 73 of the Act of 1899 long thereafter, in the year 1996 and took note of the fact that the petitioner had paid royalty of Rs.3,56,03,943/- from 1983 to 1996 and a cess of Rs.17,20,739.50 ps. Basing upon the said ﬁgures, the 3rd respondent worked out the average annual royalty to be Rs.28,71,129/-. Computing the stamp duty allegedly payable treating the said amount as the annual rent under Article 31 (a) (iv) of Schedule I-A of the Act of 1899, he raised a demand by way of the impugned Memo dated 02.04.1997 for deﬁcit stamp duty quantiﬁed at Rs.2,76,020/-. The said action is challenged in this writ petition. According to the petitioner, the document of lease was chargeable to stamp duty under Section 3 of the Act of 1899 and such chargeability arises only with reference to the date of the execution of the document and not on the basis of subsequent events. Sri B. Adinarayana Rao, learned counsel appearing for the petitioner, contended that it was not open to the 3rd respondent to take into account the actual royalties and cess paid by the petitioner in respect of the quarrying operations from 1983 to 1996 and raise a demand for deﬁcit stamp duty, treating the said amounts as part of the annual rent. He submitted that only the dead rent payable by the petitioner should be taken into account for computing the stamp duty leviable upon the lease deed. He relied upon the judgment of a 7- Judge bench of the Supreme Court in INDIA CEMENT V. STATE OF TAMIL NADU ([1]), to support his contention that royalty and cess are in the nature of tax on land and could not therefore be taken to be part of the annual rent for the purpose of computation of stamp duty under Article 31 (a) (iv) of Schedule I-A of the Act of 1899. On the other hand, the learned Government Pleader for Revenue appearing for the respondents, relying upon the counter aﬃdavit ﬁled by the 3rd respondent, contended that it was open to the authorities to compute the stamp duty payable in respect of the lease deed by taking into account the royalties and cess actually paid by the petitioner during the years 1983 to 1996, treating the same as the actual rent. The learned Government Pleader however had no authority to support his contention that the actual and total royalty and cess paid could be taken to be part of the annual rent for the purpose of computation of stamp duty. I ﬁnd force in the contention of Sri B. Adinarayana Rao that the stamp duty leviable on a document must be assessed and computed with reference to the date of the execution of the document and it is not open to the authorities under the Act of 1899 to bide their time and seek to impose deﬁcit stamp duty basing on the subsequent event, viz., the actual royalties and cess paid by a lessee under a mining lease, after a lapse of time. At the same time, I am not inclined to accept the contention of the learned counsel that stamp duty in respect of such leases should be assessed only upon the dead rent. It is no doubt true that in INDIA CEMENT’s case (1 supra) it was held that royalty on mineral rights is a tax. However, the Supreme Court clariﬁed the Judgment in INDIA CEMENT’s case (1 supra) in the subsequent Constitution Bench Judgment rendered in STATE OF WEST BENGAL V/s. KESORAM INDUSTRIES LIMITED[2]. Speaking for the majority, R.C.Lahoti,J (as His Lordship then was) held that royalty is not a tax. Referring to the earlier judgment in INDIA CEMENT’s case (1 supra), it was pointed out that the observation made in the said judgment that ‘royalty is a tax’ is clearly an error. The majority in INDIA CEMENT’s case (1 supra) was said to have held that cess on royalty is a tax and the words ‘cess on’ were said to have been inadvertently or erroneously omitted while typing the text of the judgment. The Supreme Court also pointed out that this would be clear from a reading of the judgment in its entirety. In the light of this clariﬁcation given by the Supreme Court in its later judgment in KESORAM INDUSTRIES LIMITED’s case (2 supra), it is clear that royalty cannot be treated to be a tax. In this regard, reference may also be made to the judgment of the Supreme Court in STATE OF H.P. V/s. GUJARAT AMBUJA CEMENTS LIMITED[3], wherein the deﬁnition and scope of the term ‘royalty’ was exhaustively discussed. The Supreme Court reiterated that ‘royalty’ is not a tax. It was held that ‘royalty’ is not a term used in legal parlance for the price of goods sold. Royalty was categorized to be a payment reserved by the grantor of a patent, lease of a mine or similar right, and payable proportionately to the use made of the right by the grantee, as was held by the Supreme Court earlier in STATE OF ORISSA V/s. TITAGHUR PAPER MILLS COMPANY LIMITED[4]. I n GUJARAT AMBUJA CEMENT’s case (3 supra), the Supreme Court pointed out that in its primary and natural sense “royalty” in the legal world is known as the equivalent or translation of “jura regalia” or “jura regia”. Royal rights and prerogatives of a sovereign are covered thereunder. In its secondary sense, the word “royalty” would signify, as in mining leases, that part of the reddendum, variable though, payable in cash or kind, for rights and privileges obtained. Reliance was also placed by the Supreme Court on its earlier judgment in D.K.TRIVEDI & SONS V/s. STATE OF GUJARAT[5]. The paragraph extracted by the Supreme Court from the said judgment is worthy of mention in the fact scenario of the present case and is accordingly extracted hereunder: “39. In a mining lease the consideration usually moving from the lessee to the lessor is the rent for the area leased (often called surface rent), dead rent and royalty. Since the mining lease confers upon the lessee the right not merely to enjoy the property as under an ordinary lease but also to extract minerals from the land and to appropriate them for his own use or beneﬁt, in addition to the usual rent for the area demised, the lessee is required to pay a certain amount in respect of the minerals extracted proportionate to the quantity so extracted. Such payment is called ‘royalty’. It may, however, be that the mine is not worked properly so as not to yield enough return to the lessor in the shape of royalty. In order to ensure for the lessor a regular income, whether the mine is worked or not, a ﬁxed amount is provided to be paid to him by the lessee. This is called ‘dead rent’. ‘Dead rent’ is calculated on the basis of the area leased while royalty is calculated on the quantity of minerals extracted or removed. Thus, while dead rent is a ﬁxed return to the lessor, royalty is a return which varies with the quantity of minerals extracted or removed. Since dead rent and royalty are both a return to the lessor in respect of the area leased, looked at from one point of view dead rent can be described as the minimum guaranteed amount of royalty payable to the lessor but calculated on the basis of the area leased and not on the quantity of minerals extracted or removed. In fact, clause (ix) of Rule 3 of the Rajasthan Minor Mineral Concession Rules, 1977, deﬁnes ‘dead rent’ as meaning ‘the minimum guaranteed amount of royalty per year payable as per rules or agreement under a mining lease’. Stipulations providing for the lessee’s liability to pay surface rent, dead rent and royalty to the lessor are the usual covenants to be found in a mining lease. In the light of the above precedential erudition, the argument advanced by the learned counsel for the petitioner that royalty, being a tax on the mineral rights, cannot constitute the basis for computation of the stamp duty is therefore liable to be rejected. The dead-rent, which according to the learned counsel, forms the basis for such computation is also termed as the ‘minimum royalty’ payable by the lessee, irrespective of the quarrying done and the quantity of mineral extracted. Therefore, it cannot be said that royalty has no connection or nexus with the stamp duty payable upon a deed of mining lease. In this regard, it is relevant to note that Rule 31 of the Rules of 1960 requires a mining lease to be embodied in a lease deed in the format provided in Form-K appended to the said Rules. The General Provisions under Part IX of Form-K provide under Clause 9 as follows: “For the purposes of stamp duty the anticipated royalty for the demised land is Rs. ………… per year.” This clause makes it clear that for the purposes of computing the stamp duty payable in respect of the lease deed, it is envisaged that the anticipated royalty per year is to be assessed by the authority granting the lease and speciﬁcally mentioned. It also puts it beyond doubt that something over and above the dead rent, being the anticipated royalty per year, is the substratum for the assessment of the leviable stamp duty on the lease deed. This fact is also exempliﬁed by Part-V of the lease deed dated 14.10.1980 which speciﬁes the dead rent ﬁxed per hectare during the period of the lease. Had it been the intention that such dead rent alone should be the basis for the computation of the stamp duty payable upon the lease deed, Clause-9 of Part-IX of the lease deed would have merely used the words ‘dead rent’ instead of ‘anticipated royalty’. The distinct use of the words ‘anticipated royalty’ in Clause-9 of Part-IX demonstrates that something over and above the dead rent, being the annual anticipated royalty computed by the leasing authority, is to form the foundation for the computation of the stamp duty. A copy of the lease deed dated 14.10.1980 is produced before me and it shows that this particular clause has been left blank. The Assistant Director of Mines and Geology, Nalgonda district, while executing the said lease, failed to assess and compute the anticipated royalty per year in respect of the leased land for the purpose of levying stamp duty. In the absence of such a computation as is required under Clause 9 of the General Provisions contained in Part IX of Form-K appended to the Rules of 1960, the question arises as to whether it was open to the 3rd respondent to exercise jurisdiction under Section 73(3) of the Act of 1899 and base his computation of stamp duty on the actual royalties and cess paid by the petitioner from 1983 to 1996. The actual quantity of the mineral which would be quarried by a lessee under a mining lease cannot be predicted at the time the lease is granted. Keeping this indubitable fact in mind, it appears that provision was made in the statutory form of the lease appended to the Rules of 1960 requiring the leasing authority to compute the anticipated royalty per year, so that the same could be taken into account for computing the stamp duty payable upon the lease deed. The failure of the leasing authority in the present case to discharge this function ought to have been taken note of at the time of collection of stamp duty from the petitioner in the year 1980. Appropriate measures could have been taken by the authorities at that stage itself to remedy this. Having failed to do so, it is not open to the 3rd respondent to fall back upon Section 73 (3) of the Act 1899 at a later stage and raise a demand for deﬁcit stamp duty by taking into account the actuals of the payments made by the petitioner from 1983 to 1996. In this regard it is relevant to note that Section 73 of the Act of 1899 as it originally stood is as hereunder: “73. Every public oﬃcer having in his custody any registers, books, records, papers, documents or proceedings, the inspection whereof may tend to secure any duty, or to prove or lead to the discovery of any fraud or omission in relation to any duty, shall at all reasonable times permit any person authorised in writing by the Collector to inspect for such purpose the registers, books, papers, documents and proceedings, and to take such notes and extracts as he may deem necessary, without fee or charge.” However, in so far as the State of Andhra Pradesh is concerned, the A.P. Act 17 of 1986 substituted the original Section-73 of the Act of 1899 as follows: ‘73. (1) Every public oﬃcer or any person having in his custody any registers, books, records, papers, documents or proceedings, the inspection whereof may attend to secure any duty, or to prove or lead to the discovery of any fraud or omission in relation to any duty, shall at all reasonable times permit any person authorised in writing by the Collector to enter upon any premises and to inspect for such purposes the registers, books, records, papers, documents and proceedings, and to take such notes and extracts as he may deem necessary, without fee or charge and if necessary to seize them and impound the same under proper acknowledgement: Provided that such seizure of any registers, books, records, papers, documents or other proceedings, in the custody of any bank be made only after a notice of thirty days to make good the deficit stamp duty is given. Explanation.—For the purposes of this proviso ‘bank’ means a banking company as deﬁned in Section 5 of the Banking Regulation Act, 1949 and includes the State Bank of India, constituted by the State Bank of India Act, 1955 a subsidiary bank as deﬁned in the State Bank of India (Subsidiary Banks) Act, 1959, a corresponding new bank as deﬁned in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and in the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, a regional rural bank established under the Regional Rural Banks Act, 1976, the Industrial Development Bank of India established under the Industrial Development Bank of India Act, 1964, National Bank for Agriculture and Rural Development established under the National Bank for Agriculture and Rural Development Act, 1981, the Life Insurance Corporation of India established under the Life Insurance Corporation Act, 1956. The Industrial Finance Corporation of India established under the Industrial Finance Corporation Act, 1948, and such other ﬁnancial or banking institution owned, controlled or managed by a State Government or the Central Government, as may be notiﬁed in this behalf by the Government. (2) Every person having in his custody or maintaining such registers, books, records, papers, documents or proceedings shall, when so required by the oﬃcer authorised under sub-section (1), produce them before such oﬃcer and at all reasonable times permit such oﬃcer to inspect them and take such notes and extracts as he may deem necessary. (3) If, upon such inspection, the person so authorised is of opinion that any instrument is chargeable with duty and is not duly stamped, he shall require the payment of the proper duty or the amount required to make up the same from the person liable to pay the stamp duty; and in case of default the amount of the duty shall be recovered as an arrear of land revenue.” Needless to state, the exercise of jurisdiction by the third respondent in the present case was under the provisions of the amended Section-73. Though the counter ﬁled by him surprisingly extracts the unamended Section-73 of the Act of 1899, it cannot be doubted that the authority exercised power under the amended Section 73 which alone was applicable in the State of Andhra Pradesh at that time. It is relevant to note that the amended Section-73 of the Act of 1899 was struck down by this Court in CANARA BANK AND OTHERS V/s. DISTRICT REGISTRAR AND COLLECTOR, REGISTRATION AND STAMPS DEPARTMENT AND OTHERS [6]. In appeal, the Supreme Court by its judgment in DISTRICT REGISTRAR AND COLLECTOR V/s. CANARA BANK[7] upheld the judgment of this Court conﬁrming that Section-73 of the Act of 1899 as amended in its application to the State of Andhra Pradesh by A.P. Act 17 of 1986 was ultra vires the Constitution. In this regard, the observations made by the Supreme Court in the said judgment may be referred to: “ … … Unbridled power available to be exercised by any person whom the Collector may think proper to authorise, without laying down any guidelines as to the persons who may be authorised and without recording the availability of grounds which would give rise to the belief, on the existence whereof only, the power may be exercised, deprives the provision of the quality of reasonableness. Possessing a document not duly stamped is not by itself any offence. Under the garb of the power conferred by Section 73 the person authorised may go on a rampage searching house after house i.e. residences of the persons or the places used for the custody of documents. The possibility of any wild exercise of such power may be remote, but then on the framing of Section 73, the provision impugned herein, the possibility cannot be ruled out. Any number of documents may be inspected, may be seized and may be removed and at the end the whole exercise may turn out to be an exercise in futility. The exercise may prove to be absolutely disproportionate to the purpose sought to be achieved and, therefore, a reasonable nexus between stringency of the provision and the purpose sought to be achieved ceases to exist.” In view of the fact that the amended Section-73 of the Act of 1899 applicable to the State of Andhra Pradesh was struck down as being ultra vires the Constitution, the exercise by the District Registrar in pursuance of the said provision under the impugned Memo dated 02.04.1997 cannot be saved. Thus, for reasons more than one, the exercise by the 3rd respondent and the consequential demand by way of the impugned memo dated 02.04.1997 are wholly unsustainable, being devoid of jurisdiction and legal authority. The said memo is accordingly set aside. The Writ Petition is allowed. There shall be no order as to costs. ---------------------------------- P.V. SANJAY KUMAR, J 4TH OCTOBER, 2008 CVM/PGS [1] . AIR 1990 SC 85 [2] (2004) 10 SCC 201 [3] (2005) 6 SCC 499 [4] 1985 SUPPL SCC 280 [5] 1986 SUPP SCC 20 [6] 1997 (4) ALT 118 (D.B.) [7] (2005) 1 SCC 496