# Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors

- **Citation:** 2024 INSC 848
- **Court:** Supreme Court of India
- **Decided:** 2024-11-07
- **Case number:** Writ Petition No. 715 of 2024
- **Bench:** Dr Dhananjaya Y Chandrachud
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kirloskar-ferrous-industries-limited-anr-v-union-of-india-ors-37357
- **Pages:** 40

## Headnote

Whether, the Explanation(s) appended to Rule 38 of the Mineral
(Other than Atomic and Hydrocarbons Energy Minerals) Concession
Rules, 2016 and Rule 45 of the Mineral Conservation and
Development Rules, 2017 respectively are unreasonable and
manifestly arbitrary and in consequence of violation of Article 14
of the Constitution.
Headnotes†
Mineral (Other than Atomic and Hydrocarbons Energy Minerals)
Concession Rules, 2016 - Explanation to r.38 - Mineral
Conservation and Development Rules, 2017 - Explanation
to r.45 - Validity challenged - Computation of royalty levied
for the extraction or consumption of mined ores - Change
in the methodology/formula of computation of royalty -
Compounding effect on the rate of royalty for every subsequent
month - Petitioner argued that the inclusion of the royalty and
contributions towards District Mineral Foundation (DMF) and
National Mineral Exploration Trust (NMET) paid previously
for computation of the requisite royalty for subsequent
months has a cascading effect on the rate of royalty for every
subsequent month - New methodology of computation of
royalty, if unreasonable or arbitrary:
Held: No - Merely because the methodology or formula for
computation of royalty has been altered from what it was under
the erstwhile MCR, 1960 will not make the new mechanism or
methodology unreasonable or arbitrary and liable to be struck
down - It is possible that at the relevant time in respect of some of
the minerals, royalty was being computed without inclusion of the
royalty, DMF and NMET contributions previously paid, however, that
*Author
[2024] 12 S.C.R.
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Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
does not mean that the Central Government's power is restricted
and it cannot alter the mode of computation of royalty - Matters
such as computation of royalty or the levy of such royalty on
different minerals is entirely a matter of policy making beyond
the expertise and domain of the Courts - Whether a particular
policy is wise or a better public policy can be evolved is purely
the domain of the executive - Judicial review of policy decisions
is limited to assessing the legality of the decision making process
rather than the substantive merits of the policy itself - Court should
confine itself to the question of legality as to whether the policy
making authority exceeded its powers, or committed an error of
law or breached the rules of natural justice or reached a decision
which no reasonable authority would have reached or whether
it abused its powers - Though the mechanism for computation
of royalty in terms of r.38, MCR, 2016 and r.45, MCDR, 2017
might have onerous implications in monetary terms on the mining
leaseholders as there is a compounding effect on the rate of royalty
for every subsequent month however, in absence of anything to
show that the policy was in excess of the powers or domain of the
respondents or in breach of any statutory provision, it cannot be
struck down - Mineral (Development and Regulation) Amendment
Act, 2015. [Paras 50, 51, 61]
Economic policies/laws relating to economic activities -
Mineral (Development and Regulation) Amendment Act, 2015 -
Mineral (Other than Atomic and Hydrocarbons Energy Minerals)
Concession Rules, 2016 - Explanation to r.38 - Mineral
Conservation and Development Rules, 2017 - Explanation
to r.45 - Different mechanism for computation of royalty for
coal and other minerals - Whether the exclusion of royalty,
and contributions towards DMF and NMET paid previously for
coal but not for other minerals is unreasonable and manifestly
arbitrary:
Held: No - The exclusion of royalty, and contributions towards
DMF and NMET paid previously for coal but not for other minerals
cannot be termed as arbitrary or unreasonable, merely because
the computation for one differs from the other in certain aspects -
Deference needs to be shown to the legislature in deciding how
royalty must be computed in respect of different mineral grades/
concent

## Text

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[2024] 12 S.C.R. 68 : 2024 INSC 848
Kirloskar Ferrous Industries Limited & Anr.
v.
Union of India & Ors.
(Writ Petition No. 715 of 2024)
07 November 2024
[Dr Dhananjaya Y Chandrachud, CJI,
J.B. Pardiwala* and Manoj Misra, JJ.]
Issue for Consideration
Whether, the Explanation(s) appended to Rule 38 of the Mineral
(Other than Atomic and Hydrocarbons Energy Minerals) Concession
Rules, 2016 and Rule 45 of the Mineral Conservation and
Development Rules, 2017 respectively are unreasonable and
manifestly arbitrary and in consequence of violation of Article 14
of the Constitution.
Headnotes†
Mineral (Other than Atomic and Hydrocarbons Energy Minerals)
Concession Rules, 2016 - Explanation to r.38 - Mineral
Conservation and Development Rules, 2017 - Explanation
to r.45 - Validity challenged - Computation of royalty levied
for the extraction or consumption of mined ores - Change
in the methodology/formula of computation of royalty -
Compounding effect on the rate of royalty for every subsequent
month - Petitioner argued that the inclusion of the royalty and
contributions towards District Mineral Foundation (DMF) and
National Mineral Exploration Trust (NMET) paid previously
for computation of the requisite royalty for subsequent
months has a cascading effect on the rate of royalty for every
subsequent month - New methodology of computation of
royalty, if unreasonable or arbitrary:
Held: No - Merely because the methodology or formula for
computation of royalty has been altered from what it was under
the erstwhile MCR, 1960 will not make the new mechanism or
methodology unreasonable or arbitrary and liable to be struck
down - It is possible that at the relevant time in respect of some of
the minerals, royalty was being computed without inclusion of the
royalty, DMF and NMET contributions previously paid, however, that
*Author
[2024] 12 S.C.R.
69
Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
does not mean that the Central Government's power is restricted
and it cannot alter the mode of computation of royalty - Matters
such as computation of royalty or the levy of such royalty on
different minerals is entirely a matter of policy making beyond
the expertise and domain of the Courts - Whether a particular
policy is wise or a better public policy can be evolved is purely
the domain of the executive - Judicial review of policy decisions
is limited to assessing the legality of the decision making process
rather than the substantive merits of the policy itself - Court should
confine itself to the question of legality as to whether the policy
making authority exceeded its powers, or committed an error of
law or breached the rules of natural justice or reached a decision
which no reasonable authority would have reached or whether
it abused its powers - Though the mechanism for computation
of royalty in terms of r.38, MCR, 2016 and r.45, MCDR, 2017
might have onerous implications in monetary terms on the mining
leaseholders as there is a compounding effect on the rate of royalty
for every subsequent month however, in absence of anything to
show that the policy was in excess of the powers or domain of the
respondents or in breach of any statutory provision, it cannot be
struck down - Mineral (Development and Regulation) Amendment
Act, 2015. [Paras 50, 51, 61]
Economic policies/laws relating to economic activities -
Mineral (Development and Regulation) Amendment Act, 2015 -
Mineral (Other than Atomic and Hydrocarbons Energy Minerals)
Concession Rules, 2016 - Explanation to r.38 - Mineral
Conservation and Development Rules, 2017 - Explanation
to r.45 - Different mechanism for computation of royalty for
coal and other minerals - Whether the exclusion of royalty,
and contributions towards DMF and NMET paid previously for
coal but not for other minerals is unreasonable and manifestly
arbitrary:
Held: No - The exclusion of royalty, and contributions towards
DMF and NMET paid previously for coal but not for other minerals
cannot be termed as arbitrary or unreasonable, merely because
the computation for one differs from the other in certain aspects -
Deference needs to be shown to the legislature in deciding how
royalty must be computed in respect of different mineral grades/
concentrates - Although, the computation of royalty for different
minerals is purely a matter of policy yet, it cannot be ignored
that prima facie there is anomaly both in the very computation
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mechanism of average sale price for minerals and the perplexing
stance of exclusion of only coal from such mechanism despite the
general nature and application of the aforesaid rules - Also, the
legislature itself has acknowledged the anomaly in compounding
of royalty etc. for the purpose of computation of average sale
price - Respondents granted 2 months to conclude the public
consultation process undertaken by themselves for amending the
MMDR Act and take a final decisive call as regards the cascading
impact of royalty on royalty in the calculation of the 'average sale
price' by virtue of the Explanations to r.38 of the MCR, 2016 and
r.45 of the MCDR, 2017. [Paras 71, 76, 84]
Principle of separation of powers - Doctrine of judicial restraint:
Held: Each branch of government has a unique, defined role and
operates within its designated boundaries - Separation of powers
ensures that one branch does not encroach upon the functions
of the others, with checks and balances crucial to democratic
governance - Courts should respect the decisions made by
the legislative and executive branches, provided the decisions
are legally sound and constitutionally valid - Doctrine of judicial
restraint emphasizes that courts should exercise caution and avoid
involvement in policy decisions, as these are complex judgments
requiring a balancing of diverse and often competing interests -
Courts should not replace policymakers' judgments with their own
unless absolutely necessary. [Paras 52-54]
Policy decisions - Power of judicial review:
Held: Not absolute - Policy decisions often require the expertise
of professionals and specialists in fields such as economics, public
health, national security, and environmental science etc. - These
domains involve specialized knowledge that judges, as generalists
in legal matters, may lack - Judicial review does not mean a
comprehensive re-evaluation of the policy's wisdom - It is limited
to assessing the legality of the decision-making process rather
than the substantive merits of the policy itself. [Para 56]
Interpretation of Statutes - Explanation(s) to r.38 of Mineral (Other
than Atomic and Hydrocarbons Energy Minerals) Concession
Rules, 2016 and r.45 of Mineral Conservation and Development
Rules, 2017 - Interpretation of Explanation - Aforesaid
Explanations, if exceeded the ambit of the main provisions:
[2024] 12 S.C.R.
71
Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
Held: No - Explanation added to a statutory provision is not a
substantive provision - It is merely meant to explain or clarify
certain ambiguities which may have crept in the statutory provision
and thus, must be read so as to harmonise with and clear up the
ambiguity in the main section - An explanation does not either
restrict or extend the enacting part; it does not enlarge or narrow
down the scope of the original section that it is supposed to
explain - The construction of the explanation must depend upon
its terms, and no theory of its purpose can be entertained unless
it is to be inferred from the language used - An 'explanation' must
be interpreted according to its own tenor; that it is meant to explain
and not vice versa - Merely because the Explanations to r.38 of
the MCR, 2016 and r.45 of the MCDR, 2017 provides that there
shall be no deduction of royalty, payments to the DMF and NMET
from the gross amount for the purpose of computing sale value
does not make the aforesaid Explanation in derogation of the main
provision - The Explanations are merely clarificatory in nature
inasmuch as they explain the ambiguities in the main provisions
of r.38 of the MCR, 2016 and r.45 of the MCDR, 2017, and thus,
do not exceed the ambit of the main provisions or in contravention
of the statutory scheme. [Paras 65, 66]
Case Law Cited
Mineral Area Development Authority & Anr. v. Steel Authority of
India Limited & Anr. [2024] 8 SCR 540 : 2024 SCC OnLine SC
1974; Manish Kumar v. Union of India [2021] 14 SCR 895 : (2021)
5 SCC 1; Dy. Commissioner of Income Tax & Anr. v. Pepsi Foods
Limited [2021] 4 SCR 1 : (2021) 7 SCC 413; K.P. Varghese v.
ITO [1982] 1 SCR 629 : (1981) 4 SCC 173; Natural Resources
Allocation, In Re: Special Reference No. 1 of 2012 [2012] 9 SCR
311 : (2012) 10 SCC 1 - referred to.
M.P. Oil Extraction & Anr. v. State of Madhya Pradesh & Ors [1997]
Supp. 1 SCR 671 : (1997) 7 SCC 592; Premium Granites & Anr.
v. State of Tamil Nadu & Ors. [1994] 1 SCR 579 : (1994) 2 SCC
691; Delhi Science Forum and Others v. Union of India and Another
[1996] 2 SCR 767 : (1996) 2 SCC 405; Balco Employees' Union v.
Union of India [2001] Supp. 5 SCR 511 : (2002) 2 SCC 333; State
of Punjab v. Principal Secretary to the Governor of Punjab & Anr.,
[2023] 15 SCR 777 : 2023 INSC 1017; State of U.P. v. Achal Singh
[2018] 9 SCR 912 : (2018) 17 SCC 578; R.K. Garg v. Union of
India [1982] 1 SCR 947 : (1981) 4 SCC 675; State of Tamil Nadu
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[2024] 12 S.C.R.
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and Anr. v. National South Indian River Interlinking Agriculturist
Association [2021] 7 SCR 479 : (2021) 15 SCC 534; Tata Steel
Ltd. v. Union of India [2015] 6 SCR 29 : (2015) 6 SCC 193; State
of Jharkhand v. Brahmputra Metallics Ltd [2020] 14 S.C.R. 45 :
(2023) 10 SCC 634; Ramana Dayaram Shetty v. International Airport
Authority of India & Ors. [1979] 3 SCR 1014 : AIR 1979 SC 1628;
Narottam Kishore Deb Varma v. Union of India [1964] 7 SCR 55;
H.H. Shri Swamiji of Shri Amar Mutt v. Commr., Hindu Religious
and Charitable Endowments Deptt. [1980] 1 SCR 368 : (1979) 4
SCC 642 - relied on.
List of Acts
Mines and Minerals (Development and Regulation) Act, 1957;
Mineral (Development and Regulation) Amendment Act, 2015;
Mineral (Other than Atomic and Hydrocarbons Energy Minerals)
Concession Rules, 2016; Mineral Conservation and Development
Rules, 2017; Mineral Concession Rules, 1960; Mines and Minerals
(Contribution to District Mineral Foundation) Rules, 2015; Mineral
(Auction) Rules, 2015; Constitution of India.
List of Keywords
Royalty; Extraction or consumption of mined ores; Mode of
computation of royalty; Methodology/formula of computation of
royalty changed; Not unreasonable or arbitrary; New mechanism/
methodology; Compounding effect on rate of royalty for every
subsequent month; Cascading effect; Mining leasehold company;
Iron ores; 'Sale Value'; Mineral concession; Non-profit autonomous
body; District Mineral Foundation (DMF); National Mineral
Exploration Trust (NMET); Exclusion of royalty; Deduction of royalty,
Payments to the DMF, NMET from gross amount for computing sale
value; Computation of royalty for different minerals; Policy matter;
Policy decisions; Public policy; Compounding of royalty; Average
Sale Price; Wise policy; Better public policy; Domain of the executive;
Natural resources; Economic policies/laws relating to economic
activities; Mining leaseholders; Principle of separation of powers;
Doctrine of judicial restraint; Substantive merits of the policy; Judicial
review; Decision making process; Legality; Policy making authority;
Rules of natural justice; Explanation; Ambiguities in the statutory
provision; Ambiguity in the main section; Explanations clarificatory
in nature; Different mechanism for computation of royalty for coal
and other minerals; Indian Bureau of Mines.
[2024] 12 S.C.R.
73
Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
Case Arising From
CIVIL ORIGINAL JURISDICTION: Writ Petition (C) No. 715 of 2024
(Under Article 32 of The Constitution of India)
Appearances for Parties
Rakesh Dwivedi, Ms. Kiran Suri, Dr. A.M. Singhvi, Dhruv Mehta,
Yashraj Deora Singh, Sr. Advs., S.J. Amith, Mrs. Maria Carmita
Dcosta Mashelkar, Ms. Vidushi Garg, Eklavya Dwivedi, Ms. Preetika
Dwivedi, Dr. Mrs. Vipin Gupta, M/s. Legal Options, Ninad Laud,
M.S. Ananth, Ms. Aanchal Mullick, Ms. Kamakshi Sehgal, Siddharth
Seem, Abhinav Agrawal, Ms. Ranjeeta Rohatgi, Saket Sikri, Linette
Rodrigues, Ajay Pal Singh Kullar, Naveen Kumar, Tanmaya Agarwal,
Abhishek Gupta, Advs. for the Petitioners.
Shiv Mangal Sharma, AAG, Shailesh Madiyal, Sr. Adv., M/s. K J
John & Co., Gurmeet Singh Makker, Ms. Chinmayee Chandra,
Sridhar Potaraju, Veer Vikrant Singh, Shailesh Madiyal, Sandeep
Singh, Milind Kumar, Rohit K. Singh, Harsh V. Surana, Irshad
Ahmad, Advs. for the Respondents.
Judgment / Order of the Supreme Court
Judgment
J.B. Pardiwala, J.
1.
The petitioners have invoked the jurisdiction of this Court under
Article 32 of the Constitution inter-alia seeking to challenge the validity
of the Explanation to Rule 38 of the Mineral (Other than Atomic and
Hydrocarbons Energy Minerals) Concession Rules, 2016 (for short,
the "MCR, 2016") and the Explanation to Rule 45(8)(a) of the Mineral
Conservation and Development Rules, 2017 (for short, the "MCDR,
2017") that stipulates the computation of royalty to be levied for the
extraction or consumption of mined ores.
A.
BRIEF FACTUAL MATRIX
2.
The petitioner no.1 herein is a mining leasehold company inter-alia
engaged in the extraction of pig iron and the manufacturing and sale
of its byproducts by way of a mining lease for iron ores in the State of
Karnatak in terms of the provisions and procedure envisaged under
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the Mineral (Development and Regulation) Amendment Act, 2015 (for
short the "2015 Amendment Act"). The petitioner no.2 herein is one
of the shareholders in the petitioner no.1 company. The respondent
no. 1 herein is the Union of India through the Secretary, Ministry of
Mines, whereas the respondent no. 2 herein is the Indian Bureau
of Mines.
3.
As per Section 9 of the Mines and Minerals (Development and
Regulation) Act, 1957 (for short, the ("MMDR, Act"), the revenue
required to be paid for any mineral removed or consumed from the
leasehold area would be in the form of royalty and mandates the
mining leaseholder to pay such royalty as may be specified in the
Second Schedule in respect of any minerals removed or consumed
in the leased area allotted to him. Section 9 sub-section (3) of the
MMDR Act further empowers the Central Government to enhance
or reduce the rate of royalty payable by the leaseholders by way
of a notification once every 3-years. The aforesaid provision reads
as under: -
"9. Royalties in respect of mining leases. -
(1) The holder of a mining lease granted before the
commencement of this Act shall, notwithstanding anything
contained in the instrument of lease or in any law in force
at such commencement, pay royalty in respect of any
mineral removed or consumed by him or by his agent,
manager, employee, contractor or sub-lessee from the
leased area after such commencement, at the rate for the
time being specified in the Second Schedule in respect
of that mineral.
(2) The holder of a mining lease granted on or after the
commencement of this Act shall pay royalty in respect of
any mineral removed or consumed by him or by his agent,
manager, employee, contractor or sub-lessee from the
leased area at the rate for the time being specified in the
Second Schedule in respect of that mineral.
(2A) The holder of a mining lease, whether granted before
or after the commencement of the Mines and Minerals
(Regulation and Development) Amendment Act, 1972
[2024] 12 S.C.R.
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Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
(56 of 1972) shall not be liable to pay any royalty in respect
of any coal consumed by a workman engaged in a colliery
provided that such consumption by the workman does not
exceed one-third of a tonne per month.
(3) The Central Government may, by notification in the
Official Gazette, amend the Second Schedule so as to
enhance or reduce the rate at which royalty shall be
payable in respect of any mineral with effect from such
date as may be specified in the notification:
Provided that the Central Government shall not enhance
the rate of royalty in respect of any mineral more than
once during any period of three years."
4.
Section(s) 13 and 18 of the MMDR Act respectively further
empowers the Central Government to frame Rules for regulating
the grant of mineral concession and for the conservation and
systematic development of minerals respectively. Pursuant to the
above provisions, the Central Government enacted the Mineral
Concession Rules, 1960 (for short, the "MCR, 1960") which later came
to be replaced by the MCR, 2016 for the computation and payment of
royalty in terms of Section 9 read with Schedule II of the MMDR, Act.
5.
The erstwhile MCR, 1960, more particularly Rule 64D that was
inserted vide Notification bearing no. GSR 883(E) dated 10.12.2009,
stipulated that the royalty to be paid for all non-atomic and non-fuel
minerals would be computed on the basis of the State-wise sale
price of different minerals as published by the Indian Bureau of
Mines / the respondent no. 2. The said provision reads as under: -
"64 D. Manner of payment of royalty on minerals on
ad valorem basis:
(1) Every mine owner, his agent, manager, employee,
contractor or sub-lessee shall compute the amount
of royalty on minerals where such royalty is charged
on ad valorem basis as follows:
(i) for all non-atomic and non fuel minerals sold
in the domestic market or consumed in captive
plants or exported by the mine owners (other than
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bauxite and laterite despatched for use in alumina
and metallurgical industries, copper, lead, zinc, tin,
nickel, gold, silver and minerals specified under
Atomic Energy Act), the State-wise sale prices for
different minerals as published by Indian Bureau
of Mines shall be the sale price for computation
of royalty in respect of any mineral produced any
time during a month in any mine in that State, and
the royalty shall be computed as per the formula
given below:
Royalty = Sale price of mineral (grade wise and
State-wise) published by IBM X Rate of royalty
(in percentage) X Total quantity of mineral grade
produced/ dispatched:
Provided that if for a particular mineral, the information
for a State for a particular month is not published by
the Indian Bureau of Mines, the latest information
available for that mineral in the State shall be referred,
failing which the latest information for All India for the
mineral shall be referred.
(ii) for the grades of minerals produced for captive
consumption (other than bauxite and laterite
despatched for use in alumina and metallurgical
industries, copper, lead, zinc, tin, nickel, gold
and silver) and those not despatched for sale in
domestic market or export, the sale price published
by the Indian Bureau of Mines shall be used as the
benchmark price for computation of royalty.
(iii) for primary gold, silver, copper, nickel, tin, lead
and zinc, the total contained metal in the ore or
concentrate produced during the period for which
the royalty is computed and reported in the statutory
monthly returns under Mineral Conservation and
Development Rules, 1988 or recorded in the books of
the mine owners shall be considered for the purposes
of computing the royalty in the first place and then the
royalty shall be computed as the percentage of the
[2024] 12 S.C.R.
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Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
average metal prices published by the Indian Bureau
of Mines for primary gold, silver, copper, nickel, tin,
lead and zinc during the period of computation of
royalty as follows:
Royalty = sale price X rate of royalty in percentage
where sale price = Average price of metal as published
by Indian Bureau of Mines during the month X Total
contained metal in ore or concentrate produced X
Rupee or Dollar exchange rate selling as on the last
date of the month of computation of royalty:
Provided that in case of by-product gold and silver
the royalty shall be based on the total quantity of
metal produced and such royalty shall be calculated
as follows:
Royalty = Sale price X rate of royalty in percentage
Explanation - For the purpose of this sub-clause sale
price means, average price of metal as published
by Indian Bureau of Mines during the month X Total
byproduct metal actually produced X Rupee or Dollar
Exchange rate selling as on the last date of the month
of computation of royalty.
(iv) For bauxite or laterite ore despatched for use
in alumina and aluminium metal extraction or
despatched to alumina or aluminium metal extraction
industry within India, the total contained alumina in
the bauxite or laterite ore on dry basis produced
during the period for which the royalty is computed
and reported in the statutory monthly returns under
Mineral Conservation and Development Rules, 1988
or recorded in the books of the mine owners shall be
considered for the purpose of computing the royalty in
the first place and then the royalty shall be computed
as the percentage of the average monthly price for
the contained aluminium metal in the said alumina
content of the ore published by the Indian Bureau of
Mines, on the following basis namely:-
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Royalty =
52.9
100
X Percentage
of Al2O3 in
the bauxite
on dry basis
(as reported
in the
Statutory
Monthly
return under
MCDR)
X Average
monthly
price of
aluminium
as
published
by the
IBM
X Rupee/
dollar
exchange
rate
(selling)
as on the
last date of
the period
of the
computation
of royalty
X Rate of
royalty (in
percentage)
Provided that for computing the royalty for bauxite or
laterite despatched for end use other than alumina and
aluminium metal extraction and for exports provisions of
this clause shall not apply.
(2) In case of metallic ores based on metal contained
in ore and metal prices based on benchmark prices,
the royalty shall be charged on dry basis, and the
mine owner shall establish suitable facilities for
collection of sample and its analysis on dry basis
at the mine site."
6.
A bare perusal of the aforesaid provision makes it clear that for
computing the royalty that may be payable both the i) grade-wise
and State wise sale price of mineral as published by IBM and the ii)
rate of royalty were being factored along with the quantity of mineral
that is produced or dispatched in order to determine the ultimate
royalty that may be payable.
7.
Thereafter, the Central Government by way of the aforesaid 2015
Amendment Act inter-alia inserted Section(s) 9B and 9C into the
MMDR Act whereby contributions were required to be paid to the
District Mineral Foundation ("DMF"), a non-profit body established
to work for the interest and benefit of persons and areas affected
by mining related operation and to the National Mineral Exploration
Trust ("NMET") a non-profit autonomous body for the purposes of
regional and detailed exploration.
8.
As per Section 9B sub-section (5) of the MMDR Act, the contributions
towards the DMF were computed as a percentage of the royalty paid
by the mining leaseholder that could extend upto a sum equivalent
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Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
to a maximum of one-third of such royalty. Thereafter, the Mines and
Minerals (Contribution to District Mineral Foundation) Rules, 2015
("DMF Rules") came to be enacted, Rule 2(a) of which stipulated
that the contributions towards DMF shall be computed as ten percent
of the royalty paid in accordance with the Second Schedule. On the
other hand, the contributions towards the NMET under Section 9C of
the MMDR Act, were calculated as a sum equivalent to two percent
of the royalty paid.
9.
On 04.03.2016, the Central Government vide Notification no.
GSR 278(E) enacted and notified the MCR, 2016 rules replacing
the erstwhile rules of MCR, 1960, in order to revamp the entire
mechanism inter-alia for the calculation of royalty on minerals and
the grant of concessions.
10. Rule 38 of the MCR, 2016 defines the term 'Sale Value' as the gross
amount payable as per the sale invoice where the sale transaction
is on an arms' length basis and such price is the sole consideration
for the sale excluding taxes. The Explanation appended to the said
rule further provides that for computation of 'Sale Value' there shall
no deduction in respect of royalty, payments or contributions towards
DMF and NMET. The relevant provision reads as under: -
"38. Sale Value. -
Sale value is the gross amount payable by the purchaser
as indicated in the sale invoice where the sale transaction
is on an arms' length basis and the price is the sole
consideration for the sale, excluding taxes, if any.
Explanation - For the purpose of computing sale value no
deduction from the gross amount will be made in respect
of royalty, payments to the District Mineral Foundation
and payments to the National Mineral Exploration Trust."
(Emphasis supplied)
11. Rule 39 sub-rule (3) of the MCR, 2016 further provides how royalty
is to be paid and the manner in which it is to be computed. It
stipulates that royalty in respect of any mineral is to be paid on an
Ad valorem basis. It further provides that royalty shall be calculated
at the specified percentage of the 'average sale price' of such mineral
for the month of removal / consumption as published by the Indian
Bureau of Mines.
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12. Rule 42 of the MCR, 2016 provides the manner in which the 'average
sale price' shall be computed. Rule 42 sub-rule (1) stipulates that
the average sale price of mineral grade / concentrate shall be
computed on the basis of its 'ex-mine price'. Rule 42 sub-rule (3)
further provides that the 'average sale price' shall be the weighted
average of the 'ex-mine price' as computed in terms of sub-rule (2)
of Rule 42. Rule 42 sub-rule (2)(b) provides that the 'ex-mine price'
shall be computed as the sale value of the mineral less the actual
expenditure incurred where the sale takes place domestically but
beyond the mining lease area. The said provision reads as under: -
"42. Computation of average sale price.
(1) The ex-mine price shall be used to compute average
sale price of mineral grade/concentrate.
(2) The ex-mine price of mineral grade or concentrate
shall be:
(a) where export has occurred, the free-on-board
(F.O.B) price of the mineral less the actual expenditure
incurred beyond the mining lease area towards
transportation charges by road, loading and unloading
charges, railway freight (if applicable), port handling
charges/export duty, charges for sampling and
analysis, rent for the plot at the stocking yard,
handling charges in port, charges for stevedoring
and trimming, any other incidental charges incurred
outside the mining lease area as notified by the Indian
Bureau of Mines from time-to-time, divided by the
total quantity exported.
(b) where domestic sale has occurred, sale value
of the mineral less the actual expenditure incurred
towards transportation loading, unloading, rent for
the plot at the stocking yard, charges for sampling
and analysis and any other charges beyond mining
lease area as notified by the Indian Bureau of Mines
from time-to-time, divided by the total quantity sold.
(c) where sale has occurred, between related parties
and/or where the sale is not on arms' length basis,
then such sale shall not be recognized as a sale
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Kirloskar Ferrous Industries Limited & Anr v. Union of India & Ors.
for the purpose of this rule and in such case, subclause (d) shall be applicable.
(d) where sale has not occurred, the average sale price
published monthly by the Indian Bureau of Mines for
that mineral grade / concentrate for a particular State:
Provided that if for a particular mineral grade / concentrate,
the information for a State for a particular month is not
published by the Indian Bureau of Mines, the last available
information published for that mineral grade / concentrate
for that particular State by the Indian Bureau of Mines in
the last six months previous to the reporting month shall
be used, failing which the latest information for All India
for the mineral grade / concentrate, shall be used.
(3) The average sale price of any mineral grade/
concentrate in respect of a month shall be the
weighted average of the ex-mine prices of the
non-captive mines, accordance with computed the
in above provisions, the weight being the quantity
dispatched from the mining lease area of mineral
grade I concentrate relevant to each ex-mine price."
13. In other words, Rule 39(3) of the MCR, 2016 provides that royalty
would be calculated as the percentage of the average of the 'Sale
Value'. The Sale Value of any graded mineral / concentrate for the
purposes of these rules in terms of Rule 38 is the gross amount
payable as per the sale invoice including the royalty, DMF and NMET
paid. This Sale Value minus the actual expenditure incurred (without
deducting the royalty, DMF and NMET in terms of the Explanation
to Rule 38) would be the ex-mine price of such mineral grade /
concentrate. The weighted average of this 'ex-mine price' shall be
the 'Average Sale Price' for the purposes of calculating royalty.
14. Similarly, under the Mineral Conservation and Development Rules,
2017 (for short, the "MCDR, 2017") that was enacted by the Central
Government for the conservation and systematic development of
minerals in exercise of its powers under Rule 18 of the MMDR Act,
Rule 45(8)(b) provides that the 'Sale Value' for the purposes of the said
rules is the gross amount payable without any deduction in respect
of royalty, DMF and NMET paid. The said rule reads as under: -
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"45. Monthly and annual returns -
(8) In case of mining of minerals by the holder of a mining
lease, the -
(b) ex-mine price of mineral grade or concentrate shall be,-
(I) where export has occurred, the total of, sale value on
free-on-board (F.O.B) basis, less the actual expenditure
incurred beyond the mining lease area towards -
(i)
transportation charges by road;
(ii)
loading and unloading charges;
(iii) railway freight (if applicable);
(iv) port handling charges or export duty;
(v)
charges for sampling and analysis;
(vi) rent for the plot at the stocking yard;
(vii) handling charges in port;
(viii) charges for stevedoring and trimming;
(ix) any other incidental charges incurred outside
the mining lease area as notified by the Indian
Bureau of Mines from time-to-time, divided by
the total quantity exported;
(II) where domestic sale of mineral has occurred, the total
of sale value of the mineral, less the actual expenditure
incurred towards loading, unloading, transportation, rent
for the plot at the stocking yard, charges for sampling and
analysis and any other charges beyond mining lease area
as notified by the Indian Bureau of Mines from time-totime, divided by the total quantity sold;
(III) where sale has occurred, between related parties and
is not on arms' length basis, then such sale shall not be
recognised as a sale for the purposes of this rule and in
such case, sub-clause shall be applicable;
(IV) where the sale has not occurred, the average sale
price published monthly by the Indian Bureau of Mines for
that mineral grade or concentrate for a particular State:
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Provided that if for a particular mineral grade or concentrate,
the information for a State for a particular month is not
published by the Indian Bureau of Mines, the last available
information published for that mineral grade or concentrate
for that particular State by the Indian Bureau of Mines in
the last six months previous to the reporting month shall
be referred, failing which the latest information for all India
for the mineral grade or concentrate, shall be referred;
(V) the per unit cost of production in case of captive mines."
15. It is the case of the petitioners that, in view of the Explanation(s)
appended to the definition of 'Sale Value' in Rule 38 of the MCR,
2016 and Rule 45 of the MCDR, 2017, royalty which has already been
paid in the previous month is again being factored for the purposes of
computation of royalty to be paid for the subsequent months. Thus, it
is the contention of the petitioners that this "compounding" of royalty
by virtue of the aforesaid Explanations is manifestly arbitrary inasmuch
as it has led to a cascading effect within the fold of determination of
the rate of royalty under Section 9 sub-section (3) of the MMDR Act.
16. However, when it comes to computation of royalty in respect of coal,
it was submitted by the petitioners that the Central Government has
remedied the aforesaid anomaly by excluding the previously paid
royalty and contributions towards DMF and NMET in its calculation, by
way of an amendment vide Notification No. GSR 445(E) by inserting
an Explanation in Entry A, Item 10 in the Second Schedule of the
MMDR Act. The relevant provision reads as under: -
"Explanation:- For the purposes of this sub entry -
(iii)
(iv) Actual price means the sale invoice value of coal,
net of statutory dues including taxes, · contribution to
levies,· royalty, National Mineral Exploration Trust and
District Mineral Foundation ... "
17. The petitioners have contended that for the purposes of computation
of royalty there exists no intelligible differentia between coal and iron
ore and thus, the exclusion of royalty, DMF and NMET contributions
for computation of sale value for coal but not for other minerals such
as iron is manifestly arbitrary and the aforesaid Explanation(s) to
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Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 is in
consequence of violation of Article 14 of the Constitution and liable
to be struck down.
18. During the course of hearing, our attention was also drawn to the
fact that on 25.05.2021, a notice was issued by a committee of
the Ministry of Mines inviting comments and suggestions from
all stakeholders on this issue of double calculation of royalty for
computation of the 'average sale price', and that after receiving the
responses, a report dated 31.01.2022 was submitted by the said
committee to the Ministry of Mines giving its recommendations on
the incidence of compounding royalty.
19. Although the aforesaid report has not been made publicly available,
yet the Ministry of Mines pursuant to the aforesaid report has issued
a Notice dated 25.05.2022 for public consultation on amending the
MMDR Act to bring reforms in the mining sector by inter-alia proposing
amendment to the relevant rules for removing the cascading impact
of royalty on royalty in the calculation of the 'average sale price'. The
relevant portion of the aforesaid notice reads as under: -
"1. Calculation of ASP: Removing the cascading impact
of royalty on royalty
(iv) A committee was constituted by the Ministry of Mines
under chairmanship by Shri Praveen Kumar, /AS (Retd.)
with members from Ministry of Mines, NIT/ Aayog, Ministry
of Steel, Indian Bureau of Mines (IBM) and Indian Statistical
Institute to examine the incidence of double calculation
of royalty. The committee concluded that since the sale
value already includes royalty, DMF and NMET, the Jessee
pays royalty on royalty, DMF and NMET. Due to this, there
is an additional charge on the miners under the current
methodology.
(vi) Accordingly, it is proposed to (i) introduce new section
in the MMDR Act regarding ASP; (ii) the provision shall
specifically provide that ex-mine price for determination of
ASP shall exclude GST, export duty, royalty. DMF & NMET
& such other levies as may be prescribed; (iii) the change
will be applicable for all the MLs, whether auctioned/ granted
before or after the commencement of the proposed MMDR
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Amendment Act, for the minerals removed or consumed
from the leased area after the commencement of the said
Act; and (iv) adoption of new formula only for the future
dues for existing MLs arising after the amendment"
20. The petitioners on the strength of the aforesaid notices issued by
the Ministry of Mines have contended that although the respondents
themselves have acknowledged the compounding of royalty in the
computation of 'average sale price' yet no action or amendment has
been made to the MMDR Act and the relevant rules thereunder in
this regard.
21. In such circumstances referred to above, the petitioners have come
up before this Court with the present writ petition.
B.
SUBMISSIONS OF THE PETITIONER
22. Dr. A.M. Singhvi, the learned senior counsel for the petitioners
presented the statutory background to us in his submissions. He
submitted that Section 9(2) of the MMDR Act contemplates payment
of royalty at the rates specified in the Second Schedule to the MMDR
Act and that Section 9(3) of the MMDR Act affords revision of the
rates, but with a proviso restricting it to once every 3 years.
23. Dr. Singhvi apprised us of the fact that Section 13 of the MMDR
Act empowers the Government of India to make rules, inter alia,
with respect to the manner in which royalty shall be payable and
consequent to such powers, the MCR, 2016 have been enacted.
He submitted that Rule 39(3) of the MCR, 2016 provides that where
royalty is to be paid on ad valorem basis, it shall be calculated as a
specified percentage of the ASP as published by the Indian Bureau of
Mines for the month of removal/consumption. Moreover, he underlined
that Rule 42 provides for the manner of computation of the ASP, and
sub-rule (2)(b) thereof excludes the actual expenditure incurred from
the sale value, in its prescriptions of the manner of computation.
24. We were further apprised of the fact that the method to compute ASP
is in turn governed by Rule 38 of the MCR, 2016 which defines the
term "sale value" and the Explanation thereto which stipulates that
the royalty as well as the contributions made to DMF and NMET will
not be deducted while computing the "sale value". He pointed out a
similar method of computation in Rule 45(8)(a) of the MCDR, 2017
which prescribes the manner of filing of monthly and annual returns.
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25. He submitted that the present petition seeks to challenge the
Explanation to Rule 38 of the MCR, 2016 and Explanation to
Rule 45(8)(a) of the MCDR, 2017 as they mandate the non-exclusion
of royalty and the contributions made to DMF and NMET, in the
computation of the "sale value".
26. The learned senior counsel contended that the Impugned Explanations
lead to a situation where the royalty as well as payments to DMF and
NMET made previously, are included in the ASP, which, in turn, is used
as the basis to compute royalty for the next month. Such method of
computation of ASP effectively results in the payment of royalty as
well as DMF and NMET contributions not only on the value of the
ore/mineral, but also on the royalty, DMF and NMET contributions
paid in the previous month. Thus, there is an imposition of royalty on
a royalty. It was contended that the Impugned Explanations create
a twin charge on royalty: first, a charge on the value of the mineral
before payment of royalty at the prescribed rate; and, secondly, a
re-charge of royalty on royalty at a prescribed rate.