Chattisgarh Govt wants to oblige Mine Owners with a relief of 1000 Cr

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The Pre-Amendment provision (Chhattisgarh) reads as

INDIAN STAMP ACT

SCHEDULE I A

  • 35 – Lease, including an under-lease or sub-lease and any agreement to lease or sub-let-
    1. whereby such lease the rent is fixed and no premium is paid or delivered –
      1. ….
      2. …
      3. …
      4. …
      5. where the lease purports to be for a term exceeding twenty years but does not exceeding thirty years --------------- The same duty as a Conveyance (No. 23) for market value equal to five times the amount or value of the average annual rent reserved.
      6. where the lease purports to be for a term exceeding thirty years but does not exceeding one hundred years --------------- The same duty as a Conveyance (No. 23) for market value equal to eight times the amount or value of the average annual rent reserved.
      7. ….
    2. …
    3. where the lease is granted for a fine or premium or for money advanced in addition to the rent reserved -------------------- The same duty as a Conveyance (No. 23) for market value equal to the amount or value of such fine of premium or advance as set forth in the lease, in addition to the duty which would have been payable on such lease , if no fine or premium or advance had been paid or delivered;
      Provide that,……. (irrelevant for present purposes….) in any case when an agreement to lease is stamped with ad-valorem stamp required for a lease and a lease in pursuance of such agreement is subsequently executed, the duty on such lease will not exceed ten rupees.

The above provisions were applicable in the state of Chhattisgarh for anyone wishing to get his mining lease registered. Since previously no concept of auctions existed, only amount to be paid by anyone undertaking a mining lease was under (calculated as per) Article 35 (a) (v) mentioned above. The amount to be paid by a mining lease holder in pre-auction times normally worked to be 7.5 % of the market value which was five times the rent reserved or the royalty.

Coal Block Gare Palma IV/V with proposed production capacity of 11,00,000 MT per annum was allocated to Company A for a period of 30 years, the royalty for the said grade of coal is Rs 183.40 per tonne. So the stamp duty payable to the mining lease would be 7.5% (as per conveyance no.23) of 100,87,00,000

(calculation as follows)

11,00,000 X 183 X 5 = 100,87,00,000

ie.(Production)x(Royalty /ton)x(five times)

This works out to be Rs 7,56,52,500

Article 35 (a) is very important as it clearly states “and no premium is paid or delivered” and as such is applicable to situations where no premium is charged.

Premium with respect to lease is legally understood as an amount paid by the tenant for the lease to be granted or to secure the former tenants lease often in order to secure low rent.

Thus in pre-auction days the provision applicable for registration of mining lease was Article 35(a).

After the introduction of the auction process due to the amendment in MMDR Act in 2015 the provision applicable should be Article 35 (c) which talks about the premium also being included for the purposes of calculation of the stamp duty. Herein the auction price would be treated as premium paid to obtain the lease rent

Thus in the above illustration the price bid by the Company A for Coal Block Gare Palma IV/V was Rs 3502 per tonne, the stamp duty payable as per Article 35 (c) would be The calculation would be

Premium :
3502 X 11,00,000 X 30 = 115,556,000,000

ie.(bid price/ton)x(production)x(lease period)

7.5% of (10,08,700,000 + 115,556,000,000) = Rs 874,31,02,500

Thus the difference between the two amounts before and after including premium is of about Rs 8,667,450,000.

This fact is borne out by letter dated 28th July 2015 to Registrar Stamps, Raigarh.

A new amendment has been introduced by Chhattisgarh government through an ordinance (ordinance No. 3 of 2015) which is now sought to be brought as a bill in the Vidhansabha. It is to be taken up for vote day after tomorrow morning. The new law is as under. (amendments are highlighted.)

  • 35 – Lease, including an under-lease or sub-lease and any agreement to lease or sub-let-
    1. whereby such lease the rent is fixed and no premium is paid or delivered –

      ( aa ) where the mining lease is granted on the basis of auction

      1. ….
      2. …
      3. …
      4. …
      5. where the lease purports to be for a term exceeding twenty years but does not exceeding thirty years --------------- The same duty as a Conveyance (No. 23) for market value equal to five times the amount or value of the average annual royalty reserved.
      6. where the lease purports to be for a term exceeding thirty years but does not exceeding one hundred years --------------- The same duty as a Conveyance (No. 23) for market value equal to eight times the amount or value of the average annual royalty reserved.
      7. ….
      8. …

Provided that nothing contained in clause (b) and (c) of this Article shall be applicable in respect of this clause.
Explanation – In case of grant of mining lease on the basis of auction no Stamp Duty shall be chargeable on any amount other than royalty.

Thus once the new law comes into force article 35 (c) would no longer be applicable. This would lead to an under collection of Rs 8,667,450,000.

It also needs to be taken into consideration that Government of India, Ministry of Coal had written a letter to the Chief Secretaries of all states having Coal blocks on 13th October, 2015 wherein it has been expressly stated in para 5 “However, such vesting of land is required to be recorded/mutated under the provisions of the relevant statue. Also, stamp duty is applicable for such recording/mutation. The successful allocates were also informed about the same during the meetings with the Nominated Authority under Ministry of Coal”.

This clearly shows that the relevant companies very well knew that they would have to pay stamp duty under section 35 (c) as it then existed. This would be so as the new amendments now sought to be brought in were not even in existence at the time of when the successful allocates were so informed.