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National Aluminium Company was not liable to pay interest for royalty u/s 9 of MMDR Act: Orrisa High Court

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A Single Judge Bench of Justice B. R. Sarangi held that demand of interest on the delayed payment was not legally justified, because interest is compensatory in nature and can be imposed on a person who has withheld the legitimate dues.

The National Aluminium Company Ltd. (NALCO) filed the writ petition challenging the notice of August, 2005 by the Deputy Director of Mines (DDM), calling upon it to pay a sum towards interest on the delayed payment of differential royalty for the period from September, 2000 to February, 2003, as well as subsequent further reminder notice in April, 2006.

The background of the case is that Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 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. The Central Government is 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.

NALCO, a Government of India enterprise, set up its Alumina plant for processing Bauxite to extract Alumina. The Government of Odisha granted NALCO a mining lease for extraction. NALCO paid royalty for the Ore extracted regularly at the prescribed rate.

In September, 2000 the Central Government amended the Second Schedule to the MMDR Act and introduced a new rate which was-

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

It was alleged 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. 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.

In 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. It also 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.

NALCO contended that despite clarification, the Government was uncertain as to the method of calculation and the exact quantum of demand. Accordingly, a meeting was held in June, 2002 where, it was agreed that monthly returns would be submitted on the 6th of every month. It was decided that Deputy Director of Mines would serve serve upon NALCO the demand notice on every month. This procedure was to commence from June, 2002.  The DDM did not send any notices regarding the payment.

In March, 2003, another meeting was held, in which decision was taken that NALCO will pay royalty based on the report of the Government of India.

In March, 2003 NALCO paid the entire arrears of differential dues from September, 2000 till February, 2003 along with an advance royalty of for March, 2003. According to NALCO, it was surprised to see the notice in August, 2005 demanding interest on the arrears on differential royalty for the period September, 2000 to February, 2003.

Ms. Pami Rath, counsel for NALCO placed reliance on the decisions of the Supreme Court of India in Pratibha Processors v. Union of India, and E.I.D. Parry (India) Ltd. v. Assistant Commissioner of Commercial Taxes,in support of the plea that the demand raised is arbitrary and contrary to law.

In August, 2006 while directing notice to issue to the opposite parties, the Court directed that no coercive action be taken against NALCO for realization of the interest. The interim order continued till July, 2019.

The court, while deciding the final case, in January, 2021, opined that the facts speak for themselves. It was clear that the opposite party were themselves not sure as to how the royalty on Bauxite was to be calculated in terms of the amendment. It was only after March, 2003 at the meeting that clarity was arrived at on the modalities for computation of royalty. On its part, NALCO had itself been reminding opposite parties to raise the revised demand.

There was no default on the part of NALCO in making the payment of revised royalty. The court alleged that the demand of interest on the delayed payment of revised royalty between September, 2000 and February, 2003 is not legally justified.

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.

Therefore, the writ petition was allowed.

Also Read  Order setting the defendant ex parte is not sine qua non for entertaining an application under Order IX Rule 13 C.P.C – Orrisa HC

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