Supreme Court Upholds MP Notification On Mining Lease Stamp Duty Computation Based On Anticipated Royalty

The Supreme Court has recently upheld the Madhya Pradesh Government's method of computing stamp duty on mining leases under its 1993 notification.

Holding that the notification is not ultra vires Section 26 of the Indian Stamp Act, the court said stamp duty must be determined on the highest amount among anticipated royalty based on production, the quantity prescribed under Schedule III of the M.P. Minor Mineral Rules, 1961, or dead rent.

A division bench of Justice Sanjay Karol and Justice Augustine George Masih dismissed Birla Corporation Ltd.'s appeal challenging the Madhya Pradesh High Court judgment that had upheld the demand for stamp duty based on anticipated royalty for a limestone mining lease.

"The 1993 notification, the vires of which are although challenged but such challenge almost entirely unsubstantiated which in any case we find not to be ultra vires, states that for new quarry leases the rate that is highest from amongst (a) quantity of production shown in the application form; (b) quantity showed in schedule 3 of the M.P. Minor Mineral Rules 1961 or (c) dead rent, is to be taken for calculation of royalty for the purpose of payment of stamp duty. This makes it clear that the stamp duty payable is on the highest amount as the basis for calculation of royalty from amongst these three which can be either quantity based or the dead rent. It nowhere provides that the dead rent is the only criteria on which determination of the royalty can be made," the court held.

The dispute arose after the District Collector, Satna, by a letter dated July 2, 2004, demanded ₹4.32 crore in stamp duty on a limestone mining lease granted to Birla Corporation, computing it on the basis of anticipated royalty.

The company challenged the demand before the Madhya Pradesh High Court, which dismissed its writ petition after holding that the proviso to Section 26 of the Indian Stamp Act governing mining leases operates independently and permits stamp duty to be computed on the basis of royalty.

Before the Supreme Court, Birla Corporation argued that the proviso to Section 26 was inconsistent with the main provision and that stamp duty should instead be calculated on the basis of dead rent. It also challenged the validity of the State Government's 1993 notification prescribing the method for computing stamp duty on mining leases.

Rejecting those submissions, the bench held that the value of a mining lease cannot be determined when the lease is executed, making the proviso to Section 26 directly applicable.

"At the outset, we record our rejection of the case put forward by the appellant that the proviso is inconsistent with the main provision. The section, as is obvious, deals with Stamp duty to be paid in cases of indeterminate value. Since, with respect to mining, actual value can only be determined once mining operations commence, it is undisputed that on the date of the execution of the agreement, the value is indeed indeterminate. This appears by way of a plain reading and general understanding. It is difficult to conceive otherwise," the court held.

The bench also considered Form K under the Mineral Concession Rules, 1960, under which mining leases are executed. It found that the statutory form itself prescribes anticipated royalty as the basis for calculating stamp duty, leaving no room for the appellant's reliance on Article 33 of Schedule I-A of the Stamp Act as amended in Madhya Pradesh.

"The argument regarding Article 33, Schedule I of the Stamp Act (M.P. Amendment), is not open to the appellant as a ground to assail the royalty demanded by the respondent State. The parties have consciously signed the Agreement as contained in Form K, which, at the cost of repetition, may be stated, is a statutory form which clearly mentions that for the purposes of calculation of Stamp Duty, anticipated royalty is the yardstick to be used."

Dismissing the appeal, the bench said the statutory framework leaves no ambiguity on how stamp duty is to be computed.

"The above makes abundantly clear that the amount which is higher is to be paid and for the purposes of statutory rules, the method of calculation of stamp duty is through anticipated royalty only. A perusal of the record of this case reveals that in the Form-K lease entered into between the parties, this clause does find a place. In our considered view, when this is the case there remains no manner of doubt as to the method by which stamp duty is to be computed.", the top court observed

For Petitioner: Advocate Praveen Kumar, AOR, Sunaina Kumar, 

For Respondent: Advocates Harmeet Singh Ruprah, AOR, Shashank Shekhar, Karan Singh, Kanishk Sharma,