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Petitioner: Power Cement Limited, Thatta Cement Company Limited, Popular Cement (Pvt.) Limited, Lucky Cement Limited VS Respondent: Province of Sindh & others
Court Name: Sindh High Court Judge(s): Yousuf Ali Sayeed, Ahmed Ali M. Shaikh (C.J) Title:Power Cement Limited, Thatta Cement Company Limited, Popular Cement
(Pvt.) Limited, Lucky Cement Limited vs Province of Sindh & others Case No.:C.P No. D-5381 of 2021, C.P No. D-5382 of 2021, C.P No. D-5383 of 2021, C.P No. D-5384 of 2021 Date of Judgment:2022-10-17 Reported As: 2022 SHC 460, PLD 2024 Sindh 1 Result: Accordingly Dismissed Judgment ORDER YOUSUF ALI SAYEED, J. The respective Petitioners are companies engaged in the manufacture of cement, holding mining leases granted by the Government of Sindh for the extraction of shale clay and limestone, thus profess to be aggrieved by a Notification dated 30.06.2021 issued by the Mines and Mineral Development Department (the "Impugned Notification") of the Government of Sindh under the Sindh Mining Concession Rules 2002 (the "Rules") promulgated in terms of the Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act, 1948 (the "Act"), so as to increase the amount of royalty payable on account of those minerals. 2. The Act came into force as a Federal piece of legislation, with Section 2 thereof enabling the Central Government, as it was then known, to make rules for the grant of prospecting licenses and mining leases in respect of mines, gas fields and oil fields, and Section 4 according primacy to such rules over other enactments. The Act then came to be amended through President's Order No. 1 of 1964, with effect from 28.05.1964, so as to provide for the term "Central Government", as used in Sections 2, 3 and 5, to be replaced with "Appropriate Government", and Section 6 being added so as to define the latter term to mean the Central Government in matters relating to nuclear substances, oil fields and gas fields, and the Provincial Government in relation to all other mines and mineral development. As such, in the context of the mines and minerals within the territorial jurisdiction of this Province, the particular term connotes the Government of Sindh. For purpose of reference, Sections 2 and 4 of the Act are reproduced, as follows:
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"2. Power to make rules.-- It is hereby declared to be expedient in the public interest that the [appropriate Government] shall have the power to make rules to provide for all or any of the following matters, namely:- (1) the manner in which, and the authority to whom, application for the grant or renewal of an exploration or prospecting licence, a mining lease or other mining concession shall be made, and the prescribing of the fees to be paid on such application; (2) the conditions in accordance with which the grant or renewal of an exploration or prospecting licence, and mining lease or other mining concession may be made, and the prescribing of forms for the execution or renewal of such licence, lease, and concessions; (3) the circumstances under which renewal of a licence, lease or concession as aforesaid may be refused, or any such licence, lease or concession whether granted or renewed may be revoked; (4) the determination of the rates at which, and the conditions subject to which, royalties, rents and taxes shall be paid by licensees, lessees and grantees of mining concessions; (5) the refinement of ores and mineral oils; (6) the control of production, storage and distribution of minerals and mineral oils; (7) the fixation of the prices at which minerals and mineral oils may be bought or sold; and (8) any matter ancillary or incidental to the matters set out in the foregoing clauses of this section, and the [appropriate Government] may, by notification in the official Gazette, make rules accordingly." "4. Effect of rules etc., inconsistent with other enactments.-- Any rule made under this Act, and any order made under any such rule, shall have effect notwithstanding anything inconsistent therewith contained in any enactments or in any instrument having effect by virtue of an enactment other than this act." 3. The Rules, as presently in force, thus came to be notified by the Government of Sindh pursuant to Section 2, with Rule 8 stipulating inter alia that "no person shall carry on exploration operations, mining operations or reconnaissance operations except under a mineral title or mineral permit granted by the licensing authority pursuant to these rules" and Rule 2 (gg) defining a "Mineral Title" to mean "a reconnaissance licence, an exploration licence, a mineral deposit retention license or a mining lease". Of the various categories of recognized mineral titles, that of Mining Leases is dealt with under Division V of Part III of the Rules, with Rule 47 delineating the rights of a leaseholder as follows: 47. Rights of Holder of Mining Lease -- (1) Subject to these rules and the conditions of the lease, a mining lease shall confer on the lessee - (a) the exclusive right to carry on mining operations in the mining area in question in respect of a mineral to which the lease relates; (b) the right to-- (i) carry on the mining area, in conjunction with mining operations referred to in paragraph (a), exploration operations in relation to the mineral; (ii) enter [ and occupy] the land which comprises the mining area for the purpose of carrying on mining operations referred to in paragraph (a) and exploration operations referred to in sub paragraph (i) ; (c) the right to remove from the mining area the mineral from any place where it was found or mined in the course of mining operations referred to in paragraph (a), to any other place within or outside Sindh or, subject to such other permission as may be required under any relevant law, to any place outside Pakistan: (d) the right to take and use water on or flowing through such land for any purpose necessary for mining operations subject to, and in accordance with, the provisions of the relevant legislation
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relating to water but in the exercise of such right, the lease shall not deprive any lands, villages, houses or watering of places for cattle, of a reasonable supply of water; (e) the right to sell or otherwise dispose of the mineral subject to any conditions of the mining lease or mineral agreement relation to the satisfaction of the internal requirement of Pakistan; and (f) the right, subject to sub-rule (2), to do all other things and carry on such other operations, including the erection or construction of ancillary works, as may be reasonably necessary for, or in connection with, the mining or exploration operations, and activities referred to in paragraph (a), (b), (c), or (e). (2) The provisions of rule 16(2) (consent to erection or construction) shall apply with necessary modifications in relation to the lessee who wishes to erect or construct ancillary works under sub- rule (1) of this rule. 4. Part V of the Rules addresses the financial side, with Rules 95 to 100, incorrectly worded as they may be in certain respects, laying down the framework for the levy, payment and recovery of royalty, as follows: 95- Royalties Payable on Minerals -- (1) Subject to this Part, the holder of a mineral title or mineral permit who has won or mined any mineral in the course of any exploration or mining operations carried in by the holder; shall be liable to pay to the Government, in respect of any such mineral disposed of by the holder, royalty determined in accordance with this Part. (2) For the purpose of this Part any mineral is disposed if it is-- (a) sold, donated or bartered; (b) appropriated to treatment or other processing without having been dealt with as provided in paragraph (a) prior to appropriation; or (c) exported from as provided in Sindh without having been dealt with paragraph (a) or (b) prior to export. 96. Rate of Royalties- (1) Subject to this Part, royalty shall be charged on any mineral specified by the Government from time to time (2) The existing rate of royalty on specified minerals in Sindh province is appended as Third Schedule. 97. Enhanced Royalty- Where pursuant to rule 9, a mineral agreement makes provision for the payment of royalty by the holder of a mineral title, at an enhanced rate or rates in respect of any mineral or group of minerals won, mined or found as provided in rule 95, the enhanced rate of royalty shall be determined and payable in accordance with the terms of the agreement, provided that the rate of royalty payable at any time shall not be less the rate specified in rule 96. 98. Paym ent of Royalty-(l) Royalty in respect of any mineral won, mine or found as provided in rule 95 and disposed of shall be payable not later than [30 days] after the end of the calendar in which the mineral is disposed of-- (2) Where the holder of a mineral title has failed to pay any, amount or royalty as required by sub- rule (1), a penalty calculated at the rate of [six][ten] percent per month on the amount or any part thereof from time to time remaining unpaid, shall be payable from the due date of payment until all 'outstanding amounts are paid. (3) Where any outstanding amounts of royalty and applicable penalty remain unpaid for a period of four months from the due date of payment, the holder of the mineral title shall pay a further penalty of [two] per cent on the outstanding amount of the royalty and the applicable penalty. (4) The holder of mineral title shall submit, in respect of ea month an in such form and detail as the licensing authority my determine a return showing the quantity and value of minerals produced and disposed of and the amount of royalty to be paid in "respect thereof for that month. [sic] 99. Reduction, Waiver or Deferment of Royalty. (I) Subject to sub-rule (20) the Government on the advice of the Department and with thee concurrence of the Department of Finance on application
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made in writing by the notice of a mining lease may be notice in writing in the holder. a) reduce the rate of royalty on interest payable in terms of this part or b) defer payment of any such royalty or interest for such payment and in such conditions as may be deter mined by the Government and the specified in the notice or any refuse to so reduce or defer the royalty or interest payable. (2) The government may reduce or defer the royalty or interest payable in accordance with sub rule(I) only when the holder of the mining lease has demonstrated to the specification of the Department and the Department of finance that in the absence of the reduction or defeat the mining operation would for economic reasons other wise permanent ally cease of the surrendered of an indefinite period. [sic] 100. Powers of licensing authority in case of failure to pay royalty.--- If the holder of a mineral title or a mineral permit referred to in rule 96 falls to pay any royalty payable by him in accordance with rule 98 or if applicable on or before such to which the payment of the royalty has been deferred under rule 99 the Licensing Authority may be notice in mining to the holder prohibit-- a) the removal of any mineral from the exploration area mining area retention area title and subject to the mining permit or in the case of the holder of an exploration permit from the place when the mineral is found won or mined. (b) any dealing in connection with any mineral found won or mined from any such area land or place. until such time as the royalty has been paid or the payment has been reduced waved or deferred under rule 99 5. Whilst the Petitioners had been paying royalty on limestone and shale clay extracted in terms of their mining leases, in the wake of the Impugned Notification inter alia enhancing the royalty on shale clay from Rs.8/- to Rs. 100/- per ton and limestone from Rs.12/- to Rs.126/- per ton, the captioned Petitions have been preferred so as to assail the vires of Sections 2 and 4 of the Act as well as Rules 95 and 96 addressing the subject of royalty, with the Petitioners eliciting declarations to the effect that those provisions offend the Constitution and that the specified Rules are also repugnant to the parent statute, and it being sought that the Impugned Notification consequently be declared to be illegal and void ab initio and set aside. 6. Advancing his submissions, learned counsel for the Petitioners stated with reference to the judgment of the Honourable Supreme Court in the case of Federation of Pakistan through Secretary M/o Petroleum and Natural Resources and another v. Durrani Ceramics and another 2014 SCMR 1630 that all levies as could be imposed by government under a fiscal law were by their nature categorizable as either a `tax' or a `fee', with the primary difference being that a tax was meant to raise revenue whereas a fee was meant to serve as compensation on account of some costs incurred in providing a service. On that premise, it was contended that the royalty being imposed by the Provincial Government on the minerals extracted by the Petitioners under their mining leases was in nature of a tax, with reliance being placed on the judgment of the Supreme Court of India in the case reported as India Cement v. State of Tamil Nadu AIR 1990 SC 85 ("India Cement") and it being argued that such an imposition could not be made on the basis of the Rules as the power to determine and impose a levy in the nature of a tax could not be entrusted to the executive through delegated legislation. In that backdrop, it was argued that the levy of royalty in terms of Rules 95 and 96 was liable to be struck down as bad in law as there had been an unlawful delegation by Parliament to the Executive of the power to impose a tax; with no guidelines having been laid down as to how the Executive was to determine those rates. 7. In the alternative, it was argued that even if royalty was regarded to be a fee, the same necessarily had to be relatable to a service or facility provided/extended by the Executive and commensurate/reasonable, which was absent in the instant case. It was also contended that even if royalty were considered to be a rent or compensation in terms of the mining lease, the
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requirement of reasonableness would remain applicable so as to circumscribe and control the power of unilateral variation. It was argued that unfettered and unstructured powers to determine the rate of royalty could not be delegated to the executive and the impugned provisions of the Act and Rules were liable to be struck down on that score as well. Reliance was placed on the judgments in the cases reported as Ayaz Textile Mills Ltd v. Federation of Pakistan through Secretary Commerce, and another PLD 1993 Lahore 194; Messrs. Shamim & Co v. Tehsil Municipal Administration, Multan City and 2 others 2004 YLR 366; Ittefaq Foundry v. Federation of Pakistan PLD 1990 Lahore 121; Waris Meah v. The State and another PLD 1957 SC 157; Inamur Rahman v. Federation of Pakistan and others 1992 SCMR 563; Umar Ahmed Ghumman v. Government of Pakistan and others PLD 2002 Lahore 521 and Chairman, Regional Transport Authority, Rawalpindi v. Pakistan Mutual Insurance Company Limited, Rawalpindi PLD 1991 SC 14. 8. Furthermore, it was submitted that the enhancement of royalty brought about in the instant case through the Impugned Notification was so exorbitant as to threaten the viability of the cement industry and the approval of the Provincial Cabinet for such enhancement had been obtained at a Meeting held on 04.06.2021 on the basis of misinformation, in as much as to the Cabinet had been informed that the last enhancement had taken place as far back as the year 2002, whereas the rates were revised from time to time, with the most recent enhancement having taken place in 2017. Hence the Cabinet decision could not be regarded as valid, since as per the Mustafa Impex decision any consent of the Cabinet based on a manifestly incorrect factual foundation was no consent in the eye of law, hence the purported approval to increase the rates of royalty was a nullity and liable to be set aside. Reference was made to the Minutes of the relevant Cabinet meeting, as filed by the Government with its comments, which inter alia read as follows: "2.13 "[Secretary, Mines & Mineral Development] submitted the Department's Resource Mobilization Proposal for FY 2021-2022 in which the following issues were highlighted: ...c) The Resource Mobilisation Proposal, when adopted, will have a cumulative impact of an additional amount of Rs.1626.02 million in the form of earnings for the Sindh Government. 2.14 He submitted that the rates of Application Fees, Annual Rents and Royalties on minerals in the Sindh were last revised in the year 2002 and no revision of rates has been made since then. Currently these rates are even not at par with rates being charged by other provinces and, therefore, need to be rationalized. 2.15 The Cabinet deliberated upon the enhanced rates of Limestone as proposed by the Secretary It was informed that limestone is the main ingredient in the cement industry and the new rate would generate substantial amount of revenue for the Government. 9. It was submitted that the Minutes reflected that the primary justification for the increase was that it would generate a substantial amount of revenue and it was argued that royalty was imposed as a tax. It was submitted that since that was the case, the power could not be delegated to the Executive but rather had to be introduced and/or altered vide an Act of Parliament. Reference was made to the judgment of the Honorable Supreme Court in the case reported as Engineer Iqbal Zafar Jhagra case 2013 SCMR 1337, where it was held as follows: "20. It is well settled proposition that levy of tax for the purposes of Federation is not permissible except by or under the authority of Act of Majlis-e-Shoora (Parliament). Reference in this behalf is made to the case of Cynamid Pakistan v Collector of Customs (PLD 2005 SC 495), wherein it has also been held that such legislation powers cannot be delegated to the Executive Authorities. 29.... But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive." 10. Conversely, it was argued on behalf of the Government that although a condition of payment of royalty is prescribed by the rules framed by the Government to regulate the grant of mining leases,
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the payment of royalty formed a condition of the mining leases and essentially arose out of the contract between the grantor of the lease and the lessee, hence could not be termed a tax. Reliance was placed on the judgment of the High Courts of Punjab and Haryana and of Rajasthan in the cases reported as Shanthi Saroop Sharma v. State of Punjab AIR 1969 P&H 79 and Atma Ram Bilochi v. State of Rajasthan AIR 1981 Rajasthan 197, as well as a judgment of the Lahore High Court in the case reported as Shaukat Ali v. Government of Punjab & Ors PLD 1992 Lahore 277. 11. It was submitted that under Section 2 of the Act, the legislature had competently delegated powers to the Provincial Government to frame rules for the determination of rates at which, and the conditions subject to which, royalties, rents and taxes shall be paid by the licensees, lessees and grantees of mining concessions , hence the Government was competent to frame the Rules for the determination of rates of royalties and revise such rates from time to time in accordance with Rules 95 and 96. 12. It was submitted that proposal for revision of rates came up before the Price Fixation Committee in its meeting held under the chairmanship of DG Mines and Minerals on 13 May 2020, where it was observed that the rates had lastly been revised on 12 June 2008 and the rates of royalty being charged in Sindh were lower as compared to the other Provinces of Pakistan. After working out a formula, the Committee recommended that the new rates for limestone and shale clay should be Rs. 126 and Rs. 100 per ton respectively. The recommendations were then forwarded to the Cabinet, and were considered and approved after due deliberation at the Cabinet meeting held on 04.06.2021, with the Impugned Notification then having been issued accordingly. It was submitted that it was incorrect to say that the Cabinet had granted its approval on the basis of misinformation, as it had been stated in the recommendations that the rates were lastly revised in the year 2008 and the mention of the year 2002 in the minutes of the Cabinet meeting was an inadvertent mistake. 13. Having considered the arguments advanced in the matter in light of the material placed on record, it is apparent that the crux of the Petitioners case is that royalty is a tax, hence constitutes a subject that cannot be delegated to the Executive, with the delegation undertaken through the Rules being unlawful on that score. As the argument is predicated on the assertion that royalty constitutes a tax, it is necessary to firstly examine and address that question, for which we turn to the case of India Cement, as cited on behalf of the Petitioners in that regard. 14. The question that came up before a seven-member bench of the Indian Supreme Court in that case was whether the levy of cess on royalty fell within the competence of the State Legislature, with it being argued before the Court that the levy was nothing but a tax on royalty and was therefore ultra vires the State Legislature. In that context, whilst observing that the Rajasthan, Punjab, Gujarat and Orissa High Courts had held in various cases decided by them that royalty was not a tax, the Court held as follows:- "34. In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature because Section 9 of the Central Act covers the field and the State Legislature is denuded of its competence under Entry 23 of list II. In any event, we are of the opinion that cess on royalty cannot be sustained under Entry 49 of list II as being a tax on land. Royalty on mineral rights is not a tax on land but a payment for the user of land. 15. While it was contended on behalf of the Petitioners that the question as to the nature of royalty and its status as a tax stood answered in their favour through the opinion expressed in India Cement, upon our delving further into the case law on the subject it has come to the fore that in the case reported as The State of West Bengal vs. Kesoram Industries Ltd and Ors (2004)10 SCC 201 "Kesoram Industries"), the judgment in India Cement was subsequently considered by a five- member bench of the Indian Supreme Court to suffer from a typographical error, with the Court
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then going on in the case of Mineral Area Development Authority and Ors. Vs. Steel Authority of India and Ors (2011) 4SCC 450 to grant leave and refer the matter to a larger Bench of Nine Judges to consider certain questions, including: "1. Whether "royalty" determined under Sections 9/15(3) of the Mines and Minerals (Development and Regulation) Act, 1957 (67 of 1957, as amended) is in the nature of tax? 2. ... 3. ... 4. ... 5. Whether the majority decision in State of WB v. Kesoram Industries Ltd, could be read as departing from the law laid down in the seven Judge Bench decision in India Cement Ltd. v. State of TN? 16. Under the given circumstances, it would be expedient to reproduce certain pertinent paragraphs of the judgment in Kesoram Industries regarding the perceived conflict in India Cement, with it being observed that as royalty is income and a State Legislature is not competent to impose a tax thereon, that single ground was enough to have struck down the levy of cess with nothing more having been needed. Those paragraphs read as follows: "The Conflict - a cautious evaluation of "India Cement" 51. We will now refer to and deal with those cases which have led to the three learned Judges of this Court, placing the matter for consideration by a Constitution Bench. We would refer to the cases mentioned in the order of reference and also to those cases which were heavily relied upon on behalf of the respondents, disputing the validity of the impugned tax. Immediately, we take up India Cement. 52. In India Cement Ltd. v. State of TN, what was impugned was a levy of cess on royalty and the question was, whether such cess on royalty is within the competence of the State Legislature. The appellant was required to pay, by the Tamil Nadu Panchayats Act, 1958, local cess at the rate of 45 paise per rupee of the royalty already being paid. The question formulated by the Court, as arising for decision was: is cess on royalty a demand of land revenue or additional royalty? The Court found that the royalty was payable by the appellant as prescribed under the lease deed. The rates of the royalty were fixed under the Mines and Minerals (Regulation and Development) Act, 1957, which is a Central Act, passed under Entry 54 in List I, by which the control of mines and minerals…
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