This article deals with the validity of the levy of seigniorage fee on the consumer/user and the ambiguity in the calculation of the same.
Under Entry 54 of List I of Schedule VII of the Constitution of India, the Union is empowered to legislate on matters dealing with mines and minerals. Under this List, flowing from Article 246 of the Constitution, the power to legislate on matters dealing with the “regulation of mines and mineral development” has been conferred on the Union. Such power has been exercised by the Parliament through the Mines and Minerals (Development & Regulation) Act, 1957.
Statutory provisions through delegated legislation under Constitutional framework
As per Section 9 of the Mines and Minerals (Development & Regulation) Act 1957, royalty has to be paid by any individual who has received a mining lease from the authorities. Entry 23 of List II read with Section 15 of the Mines and Minerals (Development & Regulation) Act, 1957 confers power on the State legislature to frame the Andhra Pradesh Minor Mineral Concession Rules, 1966 (henceforth referred to as APMCC Rules). Although constitutionally valid as aforementioned, there are multiple issues that arise during implementation.
The said rules require payment of seigniorage fee and obtaining dispatch permits from the Mineral and Geology (henceforth referred to as M&G) department by the lessee prior to the dispatch of minor mineral from the leased area/premises. Reading the above mentioned provisions with Rule 26 of the APMMC Rules, the lessee is required to pay seigniorage fee only on the minerals extracted from the lease area/premises and not on processed material. Further, if the lessee fails to pay the seigniorage fee on the extracted mineral then the lessee could be held liable to pay the penalty of five times the seigniorage fee.
Factors of calculation of Seigniorage Fee
In the matter of Progressive Constructions Co. it was stated that calculation of seigniorage fee is to be undertaken as per Schedule I of the APMMC Rules. Schedule I, flowing from Rule 10 of the APMMC Rules states that the segniorage fee payable on the quantity of the certain minerals when extracted is Rs. 50 per cubic metre or Rs. 33 per metric tonne. It can be logically inferred from the same figures that the conversion factor has been set at approximately 1.5 (50/33) by the M&G department on certain minerals. This is the factor of conversion applied at the time of issuance of a transit certificate. Such rate of conversion has led to widespread loss to both consumers and manufacturers. It is pertinent to note that the rules have provided the option to the lessees to make payment of seigniorage fee either on volume cubic metre basis or weight metric ton basis. However, in practice, the lessees have been making payment of seigniorage fee only on the basis of volume.
Criticism of the conversion factor
The Supreme Court in the case of Union of India and Others v. The Tata Iron and Steel Co., observed that the lack of an identifiable standard would lead to arbitrary assessment by authorities. The conversion factor (discussed above) has been criticized on the ground that there is no identifiable test or scientific report reasonably capable of identifying such a ratio for conversion. It has been argued that the conversion factor is to be set at 2.64 as per scientific standards. In response to the same, the High Court of Andhra Pradesh had appointed a Scientific Committee to address the same issue. The Committee report is yet to be submitted. To date, there are several cases pending in the High Court of Andhra Pradesh with regard to the discrepancy in the method of calculation of seigniorage fee at different stages of extraction and transaction. Perhaps, subsequent to the submission of the said report, the High Court would decide the pending cases accordingly.
Problems when burden of payment shifts to users/ consumers
The minor mineral extracted in its original state is less in volume due to the large mass. However, at the time of transportation of the said mineral, it is broken down into smaller boulders for ease of transit. This leads to an increase in the volume of the said mineral due to the air spaces created between the boulders. The problem arises since the original measurements taken are for the weight of the extracted mineral while the transit certificate is issued according to the volume of the said mineral.
Rule 26 of the APMMC Rules refers to imposition of penalty for non-payment of seigniorage fee. It was held in the case of Mysore Structural Ltd. that the primary obligation to pay the segniorage fee is prima facie on the licensee, however, the consumer is also subject to seigniorage if sufficient proof as to payment is not presented before the authorities. Though this is currently a relatively settled matter through L. Venkateswara Rao case, there remains other pertinent issues. The problem arises herein since such penalty may extend to the consumer as well. The same will be discussed below. Further, it has to be seen as to whether Rule 26 of the APMMC Rules is ultra vires the Act given that the Act requires the lessee to pay. It has to be seen as to whether the liability can be extended to a user as well within the ambit of the enacted legal provisions.
In practice, liability has been extended to the consumer since the original volume of the mineral at the time of extraction would have been lower (due to fewer air spaces) than the volume on breaking it down into smaller units. Thereby, even the original seigniorage fee paid by the manufacturer would have been lower than the new requirement of seigniorage fee payment post change in the volume of the mineral for transportation. Thus, the original measure for calculation of seigniorage fee falls short of the new measures based on volume. Since the quantum of consumption would not match the original royalty slips, the consumer would be obliged to pay the seigniorage fee and five times penalty if he is unable to explain the cause of such discrepancy. This tends to land the subsequent consumer in trouble due to lower payment having been made by the manufacturer. As was previously discussed, the question whether this is a levy permitted by the statute, remains.
The seigniorage fee is undoubtedly a valid levy under both the Constitutional paradigm and delegated legislation. However, when it comes to implementation, there is a need to maintain a common measure to avoid the aforementioned confusion and injustice caused to subsequent consumers at times who purchase in bulk. The main focus herein is not on petty consumers but on those who extract and consume in bulk. The loss being caused is far greater due to greater air space leading to added volume as stated above. It would thus be advisable to rely on a common standard of measure based on weight since the risk of double levy by the Government could possibly be avoided unlike in the current practice.
[The author is a Principal Associate, Corporate Practice, Lakshmikumaran & Sridharan, Hyderabad]