Case Background
The case arose from construction work carried out by a private company for the Water Resources Department in Bihar.
The company, acting as contractor, executed work for the department and was paid through a series of running account bills. As is usual in such government contracts, deductions were made from the bills under different heads, including royalty on mining materials used for the work.
Later, the District Mines Development Officer, Munger, issued demand letter No. 331 dated 11.08.2015. This letter directed the contractor to deposit Rs. 3,46,12,500/- as royalty and penalty. A consequential letter No. 440 dated 06.11.2015 again directed payment of the same amount and warned that, failing payment, a certificate case and other penal action would be initiated for recovery.
Feeling aggrieved, the contractor filed a writ petition before the Patna High Court seeking quashing of these two demand letters issued by the District Mines Development Officer, Munger.
What the Court Examined and Decided
The Patna High Court, presided over by Hon’ble Mr. Justice Sanjay Priya, heard counsel for the contractor as well as counsel for the State, including the Mines Department.
The central question before the Court was simple but very important for contractors: whether the Mines Department could again demand royalty and penalty when royalty had already been deducted from the contractor’s bills by the department which awarded the work.
The contractor’s counsel relied heavily on the counter affidavit filed on behalf of respondent Nos. 1 to 5, i.e., officers of the State and the Water Resources Department. In paragraph 7 of that counter affidavit, the Water Resources Department clearly admitted that payment for execution of the work was made through running account bills after making necessary deductions, including royalty for mining materials.
The same paragraph also recorded that payment had been made to the contractor till that date through 16 running account bills. From these bills, royalty of Rs. 3,10,73,283/- had already been deducted. It further stated that this deducted royalty amount had been transferred to the Mines Department through book transfer. A true copy of the statement of deductions was enclosed as Annexure-B to that counter affidavit.
To reinforce this, the contractor filed a supplementary affidavit before the Court. Along with it, the contractor enclosed copies of the running account bills as Annexure-5. These bills, according to the contractor, showed that royalty at the appropriate rate had already been deducted from the payments. On this basis, the contractor argued that there was no remaining liability towards royalty and therefore no basis for the huge demand raised by the District Mines Development Officer.
In response, the Mines Department (respondent No. 6) filed a supplementary counter affidavit. In paragraph 11 of this affidavit, the Mines Department disputed the statement of the Water Resources Department. It claimed that the statement regarding deduction of Rs. 3.10 crores under the royalty head and its transfer to the Mines Department was “without any basis.”
The Mines Department further suggested that the Water Resources Department “may be referring to some other royalty amount” and not the royalty on minerals used in the particular work or tender of the contractor. In essence, the Mines Department was disputing that the royalty so deducted related to the minerals used in this specific contract.
The contractor’s counsel also raised a procedural objection. He argued that the demand letters themselves were illegal because no notice had been served on the contractor before issuing such heavy demands. According to him, the contractor should have been given an opportunity to show cause and explain that royalty had already been deducted.
The contractor had in fact replied to the first demand notice. Annexure-3 to the writ petition contained the contractor’s reply to the demand notice dated 11.08.2015 (Annexure-2). In this reply, the contractor clearly claimed that royalty had already been deducted from the running account bills.
However, according to the contractor, the department did not consider this reply at all. Instead, it went ahead and issued the consequential order as contained in Annexure-4, again directing payment of Rs. 3,46,12,500/- as royalty and penalty.
After considering the rival stands, the Court focused on the crucial fact that the Water Resources Department itself, in its official counter affidavit, admitted that royalty had been deducted and transferred to the Mines Department by book transfer. This was supported by the statement of deductions and the running account bills produced by the contractor.
The Mines Department had attempted to question this, but its objection was general in nature. It merely said that the Water Resources Department might be referring to “some other royalty amount” without placing on record any concrete material to show that the deductions acknowledged by the Water Resources Department did not relate to this contract.
The Court noted that the contractor’s contention was backed both by the documents (running bills) and by the clear stand of one government department (Water Resources) recorded on affidavit. In such a situation, the Court found no justification for raising a fresh demand for royalty and penalty on the same work.
Further, the Court took note of the contractor’s argument that a notice and proper consideration of his reply were missing. The demand letters were issued without effectively dealing with the contractor’s stand that royalty had already been deducted. This reinforced the view that the demand was unsustainable.
On these facts, the Court concluded that the demand raised by the District Mines Development Officer, Munger, was “not in accordance with law” and was illegal.
Accordingly, the Patna High Court set aside both the demand letter No. 331 dated 11.08.2015 (Annexure-2) and the consequential letter No. 440 dated 06.11.2015 (Annexure-4). With these demands quashed, the contractor was relieved from paying the claimed amount of Rs. 3,46,12,500/- as further royalty and penalty for the same work.
The writ petition was allowed. No further directions were found necessary in the judgment.
Why This Judgment Matters
This decision is important for contractors working with government departments in Bihar, especially in projects that involve use of mining materials such as sand, stone, or other minerals.
The Patna High Court made it clear that once royalty has already been deducted from the contractor’s bills and credited to the Mines Department, another demand for the same royalty cannot be raised casually.
The case also shows that when one government department officially admits on affidavit that deductions were made and transferred, another department cannot simply ignore that stand without strong proof.
For contractors, this judgment offers some protection from repeated or overlapping royalty demands. It highlights the importance of keeping copies of running account bills and deduction statements, which can be crucial in challenging unlawful demands.
The judgment further underlines that authorities should consider replies to demand notices and follow fair procedure before threatening heavy recovery and certificate proceedings.
Legal Issues and Answers
- Issue: Can the District Mines Development Officer legally demand additional royalty and penalty when royalty has already been deducted from the contractor’s running bills and transferred to the Mines Department?
Answer: No. The Court held that, in the facts of this case, the demand was not in accordance with law and was illegal, and it therefore set aside the demand notices. - Issue: Was the demand sustained despite the contractor’s reply stating that royalty had already been deducted?
Answer: No. The Court noted that the department proceeded without properly considering the contractor’s reply and existing deductions, and consequently quashed the demands.
Cases Cited by the Court
- The judgment does not mention or rely upon any other decided case.
Case Details
Case Number: Civil Writ Jurisdiction Case No. 18555 of 2015
Case Title: M/s Czar Constructions Pvt. Ltd. v. State of Bihar & Ors.
Coram: Hon’ble Mr. Justice Sanjay Priya
Citation: 2019 (2) PLJR 1148
Advocates: Mr. Prabhat Ranjan, Advocate for the petitioner; Mr. Naresh Dikshit, Spl. P.P. Mines for the respondents
Nature of the Case: Writ petition (civil) challenging mining royalty and penalty demand notices
Date of Judgment: 11.04.2019
Link to Judgment: Patna High Court official judgment link
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