Supreme Court Upholds Rule Allowing Inclusion Of Royalty In Iron Ore's Average Sale Price To Determine Royalty

The Supreme Court on Monday (July 13) upheld the government's method of calculating royalty on iron ore, ruling that the practice of not deducting royalty payments towards District Mineral Foundation (“DMF”) and National Mineral Exploration Trust (NMET”) while computing the sale price is a valid measure to prevent mining companies from evading their liability to pay royalty to the government. A bench of Justice JB Pardiwala and Justice KV Viswanathan upheld the constitutional validity of the Explanation appended to Rule 38 of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016 and Rule 45(8)(a) of the Mineral Conservation and Development Rules, 2017, which provided for the inclusion of royalty and payments made towards DMF and NMET in the sale value for computing the average sale price for determination of royalty. “…we hold that the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules, insofar as they provide for inclusion of royalty and payments made towards DMF and NMET in the sale value for computing the average sale price for determination of royalty, is constitutional and valid. We hold that the impugned Rules are not violative of Article 14 and Article 19(1)(g) of the Constitution.”, the Court held. Under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), mining companies are required to pay 15% royalty to the State Government based on the Average Sale Price (ASP) of minerals such as iron ore. The dispute arose because the Central Government framed rules stating that, while calculating the sale value for determining the ASP, no deduction would be allowed for royalty, DMF contributions or NMET payments. Petitioner-Kirloskar Ferrous Industries challenged these provisions, arguing that royalty itself was being included in the sale value on which fresh royalty was calculated. According to the company, this resulted in an unfair "royalty on royalty" and artificially increased its financial burden. The company also pointed out that the Government had excluded such components while calculating the sale value of coal, and argued that iron ore producers should receive similar treatment. Earlier, the petitioners had approached the Supreme Court in 2024 after an expert committee constituted by the Government recommended excluding royalty, DMF and NMET from the sale value. However, after considering public consultation, the Union Government decided not to accept the committee's recommendation, stating that any such change would substantially reduce the revenue earned by State Governments. The petitioners thereafter filed the present Writ Petition under Article 32 of the Constitution claiming violation of Articles 14 and 19(1)(g) of the Constitution. Dismissing the petition, the judgment authored by Justice Viswanathan held that the impugned Rules merely prescribe the method of computing the value on which royalty is calculated and do not alter the statutory rate of royalty. “According to the petitioners, ad valorem cannot include in the value the levy of royalty, payments made towards DMF and NMET. We are not able to countenance that submission. As a means to check evasion, a measure has been prescribed under which ad valorem will be arrived at to check manipulation and to strike at evasion, certain factors have been loaded on to the sale value and we find nothing illegal in the same.”, the Court observed. The Court accepted the government's argument about the "measure of levy" on iron, noting that, unlike for coal, where the notified prices, auction prices of Coal India Limited and Singareni Collieries Company Limited or the import price form the basis of National Coal Index (NCI), there is no such mechanism for iron ore. As far as iron ore is concerned, the ASP depends on market forces and is not decided by the Government, the Court noted. Upon noting that the government's additional affidavit says that there were instances of ASP manipulations by the miners, the Court found it justifiable and reasonable to approve the government's existing measurement of ASP for levying of royalty on iron ore. According to the Court, coal pricing is largely regulated and dominated by public sector entities, whereas iron ore is produced by numerous private miners, making it more vulnerable to price manipulation.“The Union of India has demonstrated before us by producing graphs, charts and data that wherever highest examine price was reported, the quantity despatched was NIL or very less. They also demonstrated that where the ex-mine price was low, the quantity despatched was high…They contend that by this jugglery, enormous loss is caused in royalty payments and in premium payments by beating down the average sale price. The graphs, charts and data have all been set out in the earlier part of this judgment… In this scenario, it cannot be said that the measure adopted is arbitrary and has no nexus and rational connection with the...

Supreme Court Upholds Rule Allowing Inclusion Of Royalty In Iron Ore's Average Sale Price To Determine Royalty

Yash Mittal

The Court rejected the contention of miners that the rule allowed the imposition of 'royalty on royalty'.

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Yash Mittal

Supreme Court Upholds Rule Allowing Inclusion Of Royalty In Iron Ore's Average Sale Price To Determine Royalty

Yash Mittal

The Court rejected the contention of miners that the rule allowed the imposition of 'royalty on royalty'.

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

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Yash Mittal

This is a premium content
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