SC upholds royalty calculation rules for major minerals, rejects Kirloskar plea

The Supreme Court upheld the constitutional validity of rules including royalty, DMF and NMET payments in mineral sale value calculations, dismissing Kirloskar Ferrous Industries' challenge and affirming the Centre's royalty framework governing major minerals and state revenues

New Delhi: The Supreme Court on Monday upheld the constitutional validity of the provisions governing the calculation of royalty on major minerals, while rejecting a challenge from Kirloskar Ferrous Industries Ltd against the Centre.

In a judgment having far-reaching implications for the mining sector and state revenues, a bench comprising Justices JB Pardiwala and KV Viswanathan held that the relevant rules include royalty and other statutory payments within the “sale value” used to calculate mineral prices.

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Writing the 82-page judgement for the bench, Justice Viswanathan dismissed a petition filed by Kirloskar Ferrous Industries Ltd against Rule 38 of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules.

The plea had assailed the Rules as being ultra vires to Articles 14 (right to equality) and 19(1)(g) (freedom to conduct business) of the Constitution.

Kirloskar Ferrous Industries Ltd had challenged the explanations to Rule 38 of the 2016 Rules which specify that while calculating the “sale value” of minerals, no deductions should be made for payments toward royalty, District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET).

“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, are constitutional and valid,” the bench held.

“We hold that the impugned Rules are not violative of Article 14 and Article 19(1)(g) of the Constitution. We further hold that the impugned provisions are not ultra vires Section 9 of the MMDR Act. The writ petition is dismissed,” it said.

The government had said that striking down these rules would result in a staggering loss of approximately Rs 7 lakh crore to the state exchequer over the 50-year lease periods of auctioned mines.

The top court rejected the petitioners’ arguments on several key grounds and held that the legislature has the power to create “legal fictions” to prevent tax evasion.

“As a means to check evasion, a measure has been prescribed… and we find nothing illegal in the same,” the bench said. The verdict dismissed the claim of discrimination between coal and iron ore, stating the two cannot be compared.

It noted that coal production is largely a monopoly (Coal India), while iron ore involves many private players, necessitating a different regulatory mechanism to prevent under-invoicing.

The bench said that the judiciary should show “deference” to law-making authorities in complex economic matters. It ruled that individual hardship cannot be a ground to strike down a fiscal policy intended for public welfare. Invoking the legal principle that the welfare of the people is the supreme law, the verdict said that private rights must cede to the public interest and the financial health of the states.