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M/s Larsen & Toubro Ltd. till date of its demerger in 2004 and thereafter to M/s. Ultra Tech Cement Ltd.) obtained a mining lease for limestone from the Government of Maharashtra, as per lease deed dated 12.2.1980. Under the terms of the said lease, the appellant as lessee was required to pay dead rent as per clause V(1) and (2), royalty in terms of clause V(3) and surface rent, water rate and cesses in terms of clauses V(4) of the lease deed. In response to a notice served by the Collector on the appellant demanding payment of surface rent (equal to non-agricultural assessment) and the Zilla Parishad Cess (for short = (i) Whether the appellant is liable to pay ZP Cess? (ii) Whether the appellant is liable to pay GP Cess? =In view of the above, we accept the contention of the appellant that it is not liable to pay ZP cess or CP cess to the State Government under the lease deed. It is however made clear that if the said cesses (ZP cess and CP cess) become payable by the appellant by virtue of any amendment to the provisions of the respective enactments under which such cesses are leviable, then the appellant may have to pay the same. Be that as it may.

Strip Mining Operations at the Navajo Mine of ...

Image by The U.S. National Archives via Flickr

 Reportable 

 IN THE SUPREME COURT OF INDIA

 CIVIL APPELLATE JURISDICTION

 CIVIL APPEAL NO.864 OF 2005

Ultra Tech Cement Ltd. ... Appellant

(earlier Ultratech Cemco Ltd.)

Vs.

State of Maharashtra & Anr. ... Respondents

 J U G D M E N T 

R. V. Raveendran J.

 The appellant (the term `appellant' refers to M/s Larsen & Toubro 

Ltd. till date of its demerger in 2004 and thereafter to M/s. Ultra Tech 

Cement Ltd.) obtained a mining lease for limestone from the Government of 

Maharashtra, as per lease deed dated 12.2.1980. Under the terms of the said 

lease, the appellant as lessee was required to pay dead rent as per clause 

V(1) and (2), royalty in terms of clause V(3) and surface rent, water rate and 

cesses in terms of clauses V(4) of the lease deed. In response to a notice 

served by the Collector on the appellant demanding payment of surface rent 

(equal to non-agricultural assessment) and the Zilla Parishad Cess (for short 

 2

`ZP Cess') and Gram Panchayat Cess (for short `GP Cess'), the appellant 

informed the Collector by letter dated 3.1.1991, that it was not liable to pay 

the ZP cess and GP cess and that those cesses may be deleted from the 

demand. However by notice of demand dated (nil) July 1991, revised by 

notice dated 28.1.1994, the Collector, Chandrapur, reiterated the demand for 

surface rent as also the ZP and GP cesses for the years 1987 to 1992, on the 

following ground: 

 "The Government of Maharashtra vide its letter Industries Energy and 

 Labour Department (IND) No.TQCR-2176/45691/1172/IND-9 Bombay 

 dated 13.06.1978 and Director, Geology & Mining, Govt.of Maharashtra, 

 Nagpur vide letter No.STC/295/39/2007 dated 09.06.1989 have issued 

 instructions regarding fixation of surface rent on the lease area used for 

 mining purpose. As per these directives and Rule 27(1)(d) of Mineral 

 Concession Rules, 1960, the lessee is required to pay the surface rent at 

 such rate not exceeding the land revenue and the cesses assessable on the 

 land. Since the mining operation is the use of land other than the 

 Agriculture purpose, the rate of non-agricultural assessment, together 

 with the cesses assessable on the land, are applicable for levying the 

 surface rent."

 (emphasis supplied)

2. The appellant was aggrieved by the demand in so far as it relates to 

ZP cess and GP cess. According to appellant section 151(1) of Maharashtra 

Zilla Parishads and Panchayat Samitis Act, 1961 (`Zilla Parishad Act' for 

short) exempted the lessees from the state government from payment of the 

ZP cess. The appellant also contended that it was not liable to pay the GP 

cess, as section 127 (1) of Bombay Gram Panchayats Act, 1958 (`Panchayats 

Act' for short) provides for levy of GP cess at the rate of one hundred paise 

 3

on every rupee payable to the state government as ordinary land revenues in 

the area within the jurisdiction of the Panchayat, and as the appellant was 

exempted from paying land revenue under section 64 of the Maharashtra 

Land Revenue Code, 1966 (`Revenue Code' for short) read with clause 

VII(1) of the lease deed, it was not liable to pay the GP cess also. The 

appellant admitted the liability to pay surface rent equal to non-agricultural 

assessment.

3. On the other hand, the respondents contend that the demand for ZP 

cess and GP cess is authorized by Rule 27(1)(d) of the Mining Concession 

Rule, 1960 (`MC Rules' for short) read with clause V(4) of the lease deed 

and the appellant is liable for the same. The submission of the respondents is 

that they have not made any demand for cess under the Zilla Parishads Act 

or Panchayats Act and that the demand for ZP cess and GP cess is as a part 

of the surface rent. According to the respondents, the reference to ZP cess 

and GP cess assessable on the land, in the lease deed is only for the purpose 

of arriving at the figure of surface rent. The respondents' submission is that 

though "cesses per se could not have been levied under the Mineral 

Concession Rules", cesses assessable on the land has been demanded as a 

mode of calculating the charges for the surface area used by the lessee; and 

 4

so long as the amount charged does not exceed the land revenue plus ZP 

cess and GP cess assessable on the land, the lessees can have no grievance. 

4. On the rival contentions urged, two questions arise for our 

consideration: 

 (i) Whether the appellant is liable to pay ZP Cess?

 (ii) Whether the appellant is liable to pay GP Cess?

Re: Question No.(i)

5. Rule 27 of the Mining Concession Rules, 1960 prescribes the 

conditions subject to which a mining lease should be made. Clause (d) of 

sub-section (1) thereof is relevant and is extracted below : 

 "27. Conditions - (1) Every mining lease shall be subject to the following 

 conditions - xxxx xxxx

 (d) the lessee shall also pay, for the surface area used by him for the 

 purposes of mining operations, surface rent and water rate at such rate, not 

 exceeding the land revenue, and cesses assessable on the land, as may be 

 specified by the State Government in the lease."

 (emphasis supplied)

Clause 4 of Part V of the lease deed reads thus: 

 "The lessee/lessees shall pay rent and water rate to the State Government 

 in respect of all parts of the surface of the said lands which shall from time 

 to time be occupied or used by the lessee/lessees under the authority of 

 those presents at the rate of Rs...and Rs...respectively per annum per 

 hectare of the area so occupied or used and so in proportion for any area 

 less than a hectare during the period from the commencement of such 

 occupation or use until the area shall cease to be so occupied or used and 

 shall as far as possible restore the surface land so used to us in original 

 5

 condition. Surface rent and water rate shall be paid as hereinbefore 

 detailed in clause (2) provided that no such rent/water rate shall be payable 

 in respect of the occupation and use of the area comprised in any roads or 

 ways to which the public have full right of access. 

 1. Surface rent equal the non-agricultural assessment.

 2. Water rates not exceeding the land revenue.

3. Cesses assessable on the land (ZP and GP Cesses) subject to the 

 revision of rates prescribed by government from time to time."

 (emphasis supplied)

 A combined reading of Rule 27(1)(d) of the Rules and Clause V(4) of the 

 lease deed, makes it clear that the lessee under the mining lease deed is 

 liable to pay, in addition to dead rent and royalty, the following amounts : (i) 

 surface rent equivalent to non-agricultural assessment; (ii) water rate not 

 exceeding the land revenue and (iii) cesses assessable on the land specified 

 by the state government in the lease, that is ZP cess and GP cess assessable 

 on the land subject to revision of rates prescribed by government from time 

 to time. 

 6. What is significant to note is that the State Government has stipulated 

 in the lease that the mining lessee shall pay ZP cess assessable on the land. 

 It has not used the words `an amount equivalent to ZP cess that could be or 

 may be assessed on the land.' The word `assessable' means liable to be 

 assessed. Therefore when Clause V(4) of the lease deed requires the lessee 

 to pay ZP cess assessable on the land, it would mean that the mining lessee 

 6

would be liable to pay ZP cess if it is so due under the Maharashtra Zilla 

Parishads Act. 

7. Section 151(1) of the Zilla Parishad Act which is relevant is extracted 

below: 

 "151. (1) - In the Vidarbha area of the State of Maharashtra, every malik-

 makhuza, raiyat malik and occupant and every raiyat, other than a sub-

 tenant and lessee from the State Government shall be liable in respect 

 of the land held by him in the district to pay cess for the purpose of this 

 Act at the rate of twenty paise or at such increased rate not exceeding two 

 hundred paise as may be determined by the State Government under 

 section 155 on every rupee of the land revenue or rent assessed or fixed on 

 such land or the lease money payable in respect thereof, whether or not 

 such land revenue or rent or lease money or any portion thereof has been 

 released, compounded for or redeemed.

 [Note : the words in italics should be read as `at the rate of two hundred 

 paise or at such increased rate not exceeding seven hundred paise as may 

 be determined by the concerned Divisional Commissioner" after 

 amendment of section 151(1) by Maharashtra Act 1 of 1993]

 (emphasis supplied)

It is evident from the said provision of the Zilla Parishad Act that a `lessee 

from the state government' is not liable to pay ZP cess under section 151 (1) 

of the Zilla Parishads. The ZP cess can be levied only in terms of and under 

the Zilla Parishads Act and cannot be levied by the state government, under 

the terms of a contract. Where a particular cess is leviable under an 

enactment, and the contract says that the lessee is liable to pay such cess 

leviable under that enactment, but the enactment exempted a specified class 

of persons (to which the lessee belongs) from paying the said cess, the state 

 7

government cannot make the lessee liable to pay the said cess on the ground 

that under the contract entered under a different enactment, the lessee is 

liable to pay such cess. For example, if a Sales Tax Act exempts the sale of 

particular goods from tax, the seller of such goods cannot demand Sales Tax 

on the ground that the contract of sale provides that the buyer is liable to pay 

all taxes leviable under any enactment. It follows that if a lessee from the 

State Government is exempted from payment of ZP cess leviable under 

section 151(1) of the Zilla Parishads Act, by section 151(1) itself, the State 

Government cannot `levy' the said ZP cess under a contract entered in terms 

of the Mineral Concession Rules. For payment of a cess under a particular 

Act, liability under that Act is condition precedent. Therefore if ZP cess is 

not due or payable by a lessee under the ZP Act, the State cannot say that the 

amount is due under the lease deed executed in terms of the Mineral 

Concession Rules.

8. The effect of clause V(4) of the lease deed providing that the mining 

lessee shall pay `ZP cess assessable on the land' is this: if it is liable to be 

paid under the Zilla Parishads Act, that should be paid by the lessee and 

payment thereof is a term of the lease; and if the lessee is not liable to pay 

ZP cess in view of the exemption under the ZP Act, it is not payable. The 

position would have been different if the lease deed had stipulated that the 

 8

lessee is liable to pay as consideration, in addition to other sums payable, a 

sum equivalent to ZP cess under Zilla Parishad Act, irrespective of whether 

the lessee is liable to pay such cess under the Zilla Parishads Act or not. If 

the lease deed had contained such a term, the lessee would have been liable 

to pay a sum equivalent to ZP cess, irrespective of his liability under the 

Zilla Parishads Act.

9. We may in contrast, refer to the term in the lease regarding payment 

of surface rent. The clause says what is payable is `surface rent equal the 

non-agricultural assessment'. The clause does not say that the lessee is liable 

to pay `non-agricultural assessment' assessable on the land. Consequently, 

irrespective of whether non-agricultural assessment is leviable or not under 

the Maharashtra Land Revenue Code, 1966, the lessee shall be liable to pay 

an amount equivalent to non-agricultural assessment, as surface rent. What 

is payable under the contract is `surface rent' and non-agricultural 

assessment is made only the basis for quantification of the surface rent. But 

the wording relating to payment of ZP cess and GP cess, are significantly 

different from the wording relating to payment of surface rent.

10. There is yet another indication that what is required to be paid in ZP 

cess, only if it is leviable under Zilla Parishads Act. Clause V(4) provides 

 9

that the mining lessee shall pay "cesses assessable on the land (ZP and GP 

cesses) subject to the revision of rates prescribed by Government from time 

to time." This refers to revision by the State Government in exercise of the 

power under section 151(1) of Zilla Parishads Act and not in exercise of any 

power under the lease deed, as a lessor. This also shows that ZP cess as 

revised under the Zilla Parishads Act is payable only if it is payable under 

the Zilla Parishads Act and not otherwise. 

Re: Question No.(ii)

11. Section 127 of the Bombay Gram Panchayats Act, 1958 deals with 

levy and collection of cess. The said section is extracted below : 

 "(1) The State Government shall levy cess at the rate of one hundred paise, 

 on every rupee of every sum payable to the state government as 

 ordinary land revenue in the area within the jurisdiction of a 

 panchayat and thereupon, the state government shall (in addition to any 

 cess leviable under the Maharshtra Zilla Parishads and Panchayat Samitis 

 Act, 1961) levy and collect such cess in such area.

 (2) to (4) deleted by Maharashtra Act 10 of 1992.

 (5) For the purpose of levying and collecting the cess referred to in sub-

 section (1), in the Bombay area athe provisions of section 144 (including 

 the Fourth Schedule), 145, 147 and 149, in the Vidarbha area, the 

 provisions of section 151, and in the Hyderabad area, the provisions of 

 section 152 of the Maharashtra Zilla Parishad and Panchayat Samitis Act, 

 1961, shall apply thereto as they apply to the levy of cess leviable under 

 section 144, section 151, or as the case may be, section 152 of that Act." 

 (emphasis supplied)

Section 64 of the Maharashtra Land Revenue Code, 1966 (`Code' for short) 

reads thus:

 10

 "64. All land liable to pay revenue unless specially exempted. 

 All land, whether applied to agricultural or other purposes, and wherever 

 situate, is liable to the payment of land revenue to the State Government as 

 provided by or under this Code except such as may be wholly exempted 

 under the provisions of any special contract with the State 

 Government, or an any law for the time being in force or by special grant 

 of the State Government. 

 But nothing in this Code shall be deemed to affect the power of the 

 Legislature of the State to direct the levy of revenue on all land under 

 whatever title they may be held whenever and so long as the exigencies of 

 the State may render such levy necessary."

 (emphasis supplied)

The term `land revenue' is defined in section 2(19) of the said Code as 

under:-

 "(19) "land revenue" means all sums and payments, in money received or 

 legally claimable by or on behalf of the State Government from any 

 person on account of any land or interest in or right exercisable over land 

 by or vested in him, under whatever designation such sum may be payable 

 and any cess or rate authorised by the State Government under the 

 provisions of any law for the time being in force; and includes premium, 

 rent, lease money, quit rent, judi payable by an inamdar or any other 

 payment provided under any Act, rule, contract or deed on account of any 

 land."

12. Section 127(1) of the Panchayats Act casts a liability to pay one 

hundred paise as cess on every rupee of every sum payable to the state 

government as ordinary land revenue. This cess is described as Gram 

Panchayat cess or GP cess. The effection of section 127(1) is that wherever 

land revenue is payable by a person, such person liable to pay the land 

revenue, will also have to pay GP cess equal to the amount of the land 

 11

revenue. Therefore only a person who is liable to pay land revenue will be 

liable to pay GP cess. Section 64 of the Land Revenue Code provides that all 

lands are liable to payment of land revenue to the state government except 

such as may be wholly exempted under the provisions of the special contract 

with the state government. Clause VII(1) of the lease deed dated 12.2.1980 

between State Government and the appellant provides such exemption as it 

says the lessee shall not be liable to pay land revenue. We extract below 

clause (1) of Part VII of the lease deed for ready reference:

 "Lessee to pay rents and royalties, taxes, etc.

 1. The lessee/lessees shall pay the rent, water rate and royalties reserved 

 by this lease at such times and in the manner provided in the PARTS V 

 and VI of these presents and shall also pay and discharge all taxes, rates 

 assessment and impositions whatsoever being in the nature of public 

 demands which shall from time to time be charged, assessed or imposed 

 by the authority of the Central and State Governments upon or in respect 

 of the premises and works of the lessee/lessees in common with other 

 premises and works of the like nature except demands for land 

 revenues."

 (emphasis supplied)

13. Even under Clause V(4) of the lease deed, what is liable to be paid is 

`surface rent' which is equivalent to the non-agricultural assessment, and not 

land revenue, that is non-agricultural assessment itself. Thus there is a 

special contract between the State and the appellant whereby the appellant is 

exempted from paying land revenue. If the appellant is not liable to pay the 

land revenue, it will not be liable to pay any GP cess, as section 127(1) 

 12

makes it clear that the said cess is payable only on the amount payable as 

land revenue. If no amount is payable as land revenue, it follows as no 

amount is payable as GP cess. Therefore appellant is not liable to pay GP 

cess under the Panchayats Act. Clause V(4) of the lease deed requires 

payment of GP cess only if it is payable under the Panchayats Act. For the 

reasons stated while dealing ZP cess, we hold that the appellant is not liable 

to pay GP cess also.

Conclusion

14. The object of clause V(4) of the lease deed is clear. Normally, all 

leases will contain a provision as to who will be liable to pay the rates, taxes, 

cesses on the property leased. If the lease deed is silent, then the lessor 

would be liable to bear and pay the rates, taxes and cesses. Therefore, where 

the understanding is that the lessee should be liable to pay the rates, taxes 

and cesses in addition to the rent or premium, the lease deed will provide 

specifically that the lessee shall bear and pay all rates, taxes and cesses. But 

this is always on the assumption that there is a liability under the respective 

enactments to pay any rates, taxes, cesses in respect of the property. All that 

clause V(4) of the lease deed provides is that the lessee should bear and pay 

the ZP cess and GP cess, if it is leviable under the respective enactments. 

 13

15. In view of the above, we accept the contention of the appellant that it 

is not liable to pay ZP cess or CP cess to the State Government under the 

lease deed. It is however made clear that if the said cesses (ZP cess and CP 

cess) become payable by the appellant by virtue of any amendment to the 

provisions of the respective enactments under which such cesses are 

leviable, then the appellant may have to pay the same. Be that as it may. 

16. The appeal is therefore allowed. The judgment of the High Court is 

set aside. The writ petition filed before the High Court stands allowed and 

the demand notices dated (nil) July 1991 as amended on 28.10.1994 in 

regard to the period 1987 to 1992 is quashed in so far as the demand for 

payment of ZP cess and CP cess. 

 ...............................................J.

 [ R. V. Raveendran ]

 ................................................J.

 [A. K. Patnaik]

New Delhi ..................................................J.September 27, 2011 [Sudhansu Jyoti Mukhopadhaya)

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