# Kirloskar Ferrous Industries Ltd. and Anr v. Union of India & Anr

- **Citation:** 2026 INSC 679
- **Court:** Supreme Court of India
- **Decided:** 2026-07-13
- **Bench:** J.B. Pardiwala, K.V. Viswanathan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/kirloskar-ferrous-industries-ltd-and-anr-v-union-of-india-anr-39298
- **Pages:** 56

## Headnote

Issue arose whether the explanations appended to r.38 of the
2016 Rules and r.45(8)(a) of the 2017 Rules ultra vires Arts.14
and 19(1)(g) of the Constitution as well as s.9 of the MMDR Act
to the extent that the levy provides for inclusion of royalty and
payments made towards DMF and NMET in the sale value.
Headnotes†
Minerals (Other than Atomic and Hydro Carbons Energy
Minerals) Concession Rules, 2016 - Explanation appended to
r.38 - Mineral Conservation and Development Rules, 2017 -
Explanation to r.45(8)(a) - Constitutional validity of - Writ
petition that the Explanation appended to r.38 of the 2016
Rules and the Explanation appended to r.45(8)(a) of the 2017
Rules, both of which include the payments made towards
royalty, District Mineral Foundation-DMF and National Mineral
Exploration Trust-NMET as a component of the sale value,
while computing the average sale price, violative of Arts.14
and 19(1)(g) as being manifestly arbitrary, and ultra vires s.9
of the MMDR Act, since s.9 read with the Schedule is based
on the concept of ad valorem:
Held: Explanation to r.38 of the 2016 Rules and r.45(8)(a) of the
2017 Rules, insofar as they provide for inclusion of royalty and
payments made towards District Mineral Foundation-DMF and
National Mineral Exploration Trust-NMET in the sale value for
computing the average sale price for determination of royalty,
is constitutional and valid - Impugned Rules not violative of
Arts.14 and 19(1)(g) - Impugned provisions not ultra vires s.9
of the MMDR Act - Measure of levy and the decision not to
exclude royalty and payments made towards DMF and NMET not
* Author
[2026] 8 S.C.R.
105
Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
arbitrary and has nexus and rational connection with the nature
of the levy - Measure adopted in the Explanations to r.38 of the
2016 Rules and r.45(8)(a) of the 2017 Rules for computation of
sale value which, in turn, is an essential factor in computation of
the Average Sale Price-ASP, fully justified - Nothing capricious
or irrational about the measure and it cannot be said that it has
been adopted without any determining principle nor the measure
excessive or disproportionate for it to be characterized as
manifestly arbitrary - Comparison with coal completely unjustified
as there is no concept of ASP in coal and that too based on data
given by the miners - 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 nothing illegal in the
same - Measure of levy, as provided, read with the explanation,
is intended to ensure that, to the extent possible, loss of revenue
is offset - Such loss of revenue occurs due to manipulation of
prices - When a measure of levy is prescribed to check evasion,
individual hardships cannot be determinative - Afterall, the
grundnorm is "Salus populi suprema lex"-regard for the public
welfare is the highest law - Private rights will have to cede to
public interest - Constitutional Court called upon to pronounce on
the validity of such fiscal measures should be loath to interfere,
for any interference in the absence of legitimate grounds would
put public interest in jeopardy - Thus, measure not unreasonable
or disproportionate, and no infirmity in the impugned provisions -
Constitution of India - Mines and Minerals (Development and
Regulation) Act, 1957. [Paras 92, 94-97, 100, 103]

## Text

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[2026] 8 S.C.R. 104 : 2026 INSC 679
Kirloskar Ferrous Industries Ltd. and Anr.
v.
Union of India & Anr.
(Writ Petition (C) No. 733 of 2025)
13 July 2026
[J.B. Pardiwala and K.V. Viswanathan,* JJ.]
Issue for Consideration
Issue arose whether the explanations appended to r.38 of the
2016 Rules and r.45(8)(a) of the 2017 Rules ultra vires Arts.14
and 19(1)(g) of the Constitution as well as s.9 of the MMDR Act
to the extent that the levy provides for inclusion of royalty and
payments made towards DMF and NMET in the sale value.
Headnotes†
Minerals (Other than Atomic and Hydro Carbons Energy
Minerals) Concession Rules, 2016 - Explanation appended to
r.38 - Mineral Conservation and Development Rules, 2017 -
Explanation to r.45(8)(a) - Constitutional validity of - Writ
petition that the Explanation appended to r.38 of the 2016
Rules and the Explanation appended to r.45(8)(a) of the 2017
Rules, both of which include the payments made towards
royalty, District Mineral Foundation-DMF and National Mineral
Exploration Trust-NMET as a component of the sale value,
while computing the average sale price, violative of Arts.14
and 19(1)(g) as being manifestly arbitrary, and ultra vires s.9
of the MMDR Act, since s.9 read with the Schedule is based
on the concept of ad valorem:
Held: Explanation to r.38 of the 2016 Rules and r.45(8)(a) of the
2017 Rules, insofar as they provide for inclusion of royalty and
payments made towards District Mineral Foundation-DMF and
National Mineral Exploration Trust-NMET in the sale value for
computing the average sale price for determination of royalty,
is constitutional and valid - Impugned Rules not violative of
Arts.14 and 19(1)(g) - Impugned provisions not ultra vires s.9
of the MMDR Act - Measure of levy and the decision not to
exclude royalty and payments made towards DMF and NMET not
* Author
[2026] 8 S.C.R.
105
Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
arbitrary and has nexus and rational connection with the nature
of the levy - Measure adopted in the Explanations to r.38 of the
2016 Rules and r.45(8)(a) of the 2017 Rules for computation of
sale value which, in turn, is an essential factor in computation of
the Average Sale Price-ASP, fully justified - Nothing capricious
or irrational about the measure and it cannot be said that it has
been adopted without any determining principle nor the measure
excessive or disproportionate for it to be characterized as
manifestly arbitrary - Comparison with coal completely unjustified
as there is no concept of ASP in coal and that too based on data
given by the miners - 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 nothing illegal in the
same - Measure of levy, as provided, read with the explanation,
is intended to ensure that, to the extent possible, loss of revenue
is offset - Such loss of revenue occurs due to manipulation of
prices - When a measure of levy is prescribed to check evasion,
individual hardships cannot be determinative - Afterall, the
grundnorm is "Salus populi suprema lex"-regard for the public
welfare is the highest law - Private rights will have to cede to
public interest - Constitutional Court called upon to pronounce on
the validity of such fiscal measures should be loath to interfere,
for any interference in the absence of legitimate grounds would
put public interest in jeopardy - Thus, measure not unreasonable
or disproportionate, and no infirmity in the impugned provisions -
Constitution of India - Mines and Minerals (Development and
Regulation) Act, 1957. [Paras 92, 94-97, 100, 103]
Case Law Cited
Balaji v. ITO (1961) 43 ITR 393; Sardar Baldev Singh v. CIT,
Delhi & Ajmer [1961] 1 SCR 482 : 1960 SCC OnLine SC 147;
Navnit Lal C. Javeri v. K.K. Sen, Appellate Assistant Commissioner
of Income Tax, Bombay [1965] 1 SCR 909; Union of India and
Anr. Etc. Etc. v. A. Sanyasi Rao and Ors. Etc. Etc. [1996] 2 SCR
570 : (1996) 3 SCC 465; State of Madras v. V.G. Row [1952]
SCR 597 - relied on.
State of Tamil Nadu and Another v. P. Krishnamurthy and Others
[2006] 3 SCR 396 : (2006) 4 SCC 517; Mineral Area Development
Authority & Anr. v. M/s Steel Authority of India and Another
106
[2026] 8 S.C.R.
Supreme Court Reports
[2024] 7 SCR 1549 : (2024) 10 SCC 1; Union of India & Ors. v.
Bombay Tyre International Ltd. and Others [1984] 1 SCR 347 :
(1984) 1 SCC 467; M/s R.R. Engineering Co. v. Zila Parishad,
Bareilly and Anr. [1980] 3 SCR 1 : (1980) 3 SCC 330; HingirRampur Coal Co., Ltd. and Others v. State of Orissa and Others
[1961] 2 SCR 537 - referred to.
Ralla Ram v. Province of East Punjab, 1948 SCC Online
FC 9 - referred to.
List of Acts
Minerals (Other than Atomic and Hydro Carbons Energy Minerals)
Concession Rules, 2016; Constitution of India; Mines and Minerals
(Development and Regulation) Act, 1957; Mineral Conservation
and Development Rules, 2017; Mines and Minerals (Development
and Regulation) Act, 2015; Mineral (Auction) Rules, 2015; National
Mineral Exploration Trust Rules, 2015; Mines and Minerals
(Contribution to District Mineral Foundation) Rules, 2015; Mineral
Concession Development Rules, 1988.
List of Keywords
Explanations appended to Rule 38 of the 2016 Rules and Rule
45(8)(a) of the 2017 Rules; Levy provides for inclusion of royalty
and payments made towards DMF and NMET in the sale value;
Royalty; District Mineral Foundation-DMF; National Mineral
Exploration Trust-NMET; Component of the sale value; Computing
of the average sale price; Concept of ad valorem.
Case Arising From
CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil) No.
733 of 2025
Under Article 32 of the Constitution of India
Appearances for Parties
Advs. for the Petitioner(s):
Dr. A. M. Singhvi, Balbir Singh, Shyam Divan, Sr. Advs. Mahesh
Agarwal, Ninad Laud, M S Ananth, Avishkar Singhvi, Ms. Aanchal
Mullick, Ms. Kamakshi Sehgal, Siddharth Seem, Ivo Dcosta,
Naman Tandon, Abhinav Agrawal, Piyush Bhardwaj, Shivam
Sengupta, Ms. Ishani Shekhar.
[2026] 8 S.C.R.
107
Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
Advs. for the Respondent(s):
R Venkataramani, Attorney General for India, Tushar Mehta,
Solicitor General, Vikaramjeet Bannerjee, K. M. Nataraj, A.S.Gs.,
Sudarshan Lamba, Ms. Ameyvikrama Thanvi, Chitvan Singhal,
Abhishek Kumar Pandey, Raman Yadav, Kartikay Aggarwal, Ms.
Deboshree Mukherjee, Ms. Yamika Khanna, Ms. Hina Bhardwaj,
Vikash Kumar, P. V. Yogeswaran, Ms. Shailja Singh, Mrs. Prerna
Dhall, Ms. Rajnandani Kumari, Ambuj Swaroop, Kapil Katare,
Prashant Singh.
Judgment / Order of the Supreme Court
Judgment
K.V. Viswanathan, J.
INDEX*
A.
SUMMARY OF FACTS: AN EARLIER ROUND IN THIS COURT ...
3
B.
BRIEF OVERVIEW OF THE FACTS .......................................... 10
C.
PLEADINGS AND CONTENTIONS ............................................ 15
i.
PETITIONERS' CASE ........................................................ 15
ii.
RESPONSE OF THE UNION OF INDIA ........................... 28
D.
QUESTION FOR CONSIDERATION .......................................... 43
E.
ANALYSIS AND DISCUSSION ..................................................
44
F.
MAINTAINABILITY AND ESTOPPEL ........................................ 44
G.
CERTAIN FUNDAMENTAL PRINCIPLES .................................
45
H.
PRESUMPTION OF CONSTITUTIONALITY .............................
46
I.
LIBERAL CONSTRUCTION OF LEGISLATIVE ENTRIES .......
47
J.
NATURE OF ROYALTY .............................................................. 49
K.
CONSIDERATION OF THE LEGAL PROVISIONS IN ISSUE
HEREIN .......................................................................................
50
L.
MEASURE OF LEVY AND NATURE OF LEVY ........................
53
M.
MEASURE OF LEVY - AS AN ANTIDOTE TO CHECK
EVASION ....................................................................................
60
N.
APPLICATION OF LAW TO THE FACTS .................................. 71
O.
CONCLUSION ............................................................................. 81
* Ed. Note: Pagination as per the original Judgment.
108
[2026] 8 S.C.R.
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1.
The petitioners in the present writ petition are challenging the
constitutional validity of the Explanation appended to Rule 38 of the
Minerals (Other than Atomic and Hydro Carbons Energy Minerals)
Concession Rules, 2016 (hereinafter "the 2016 Rules") as being ultra
vires Articles 14, 19(1)(g) of the Constitution of India and Section 9
of the Mines and Minerals (Development and Regulation) Act, 1957
(for short "the MMDR Act") to the extent that the rule provides
for inclusion of payments made towards Royalty, District Mineral
Foundation ("DMF") and National Mineral Exploration Trust (NMET")
in the sale value. Equally, the Explanation to Rule 45(8)(a) of the
Mineral Conservation and Development Rules, 2017 (hereinafter
"the 2017 Rules"), which is in identical terms, is also challenged
on the same ground.
SUMMARY OF FACTS: AN EARLIER ROUND IN THIS COURT : -
2.
The petitioners earlier filed a Writ Petition (C) No. 715 of 2024 calling
in question the validity of the impugned rules. A detailed judgment
was passed on 07.11.2024, and the writ petition was disposed of on
19.05.2025. During the course of hearing of the said writ petition, it
was noticed that when a situation with regard to non-deduction of
payments made towards Royalty, DMF and NMET from the value
of coal was provided for, the Central Government remedied the
situation. During the course of hearing, it was brought to the notice
of the Court that, on 06.04.2021, Ministry of Mines had constituted
a Committee for examining the issue and on 25.05.2021, a notice
was issued by the Committee inviting comments and suggestions
on this issue and pursuant thereto, a Report dated 31.01.2022 was
submitted by the Committee to the Ministry of Mines.
3.
It was recorded in the said judgment dated 07.11.2024 that pursuant
to the aforesaid Report, a notice dated 25.05.2022 initiating public
consultation on amending the MMDR Act had also been issued.
The relevant portion of the notice reads as under: -
"1. Calculation of ASP: Removing the cascading
impact of royalty on royalty
(ii) A committee was constituted by the Ministry of Mines
under chairmanship by Shri Praveen Kumar, IAS (Retd.)
with members from Ministry of Mines, NITI Aayog,
Ministry of Steel, Indian Bureau of Mines (IBM) and
[2026] 8 S.C.R.
109
Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
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 lessee 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 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"
Since no action was thereafter taken, the matter was argued on merits.
4.
This Court further observed that exclusion of payments made towards
royalty and contribution towards DMF and NMET for coal but not
for other minerals cannot be termed as arbitrary and unreasonable,
merely because the computation for one differs from the other in
certain aspects. This Court also observed that deference needs to
be shown to the law-making authorities in deciding how royalty must
be computed in respect of different mineral grades/concentrates.
5.
Thereafter, what this Court observed is very crucial. This Court
observed that while different treatment of the two minerals may not
be in excess of the powers or domain of the respondents or the
differential treatment may not be in breach of any statutory provision,
the court cannot ignore or overlook the fact that the legislature itself
has acknowledged the anomaly in compounding of royalty for the
purpose of computation of Average Sale Price (hereinafter 'ASP').
This Court further observed that even the respondent-Union of India
had acknowledged that the differing mechanism for coal and other
minerals is not based on any fine distinction between the two, but
rather an anomaly in the 2016 Rules and 2017 Rules, and it is for
that reason that a Committee had been constituted to look into
110
[2026] 8 S.C.R.
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the same and that the Committee had proposed amendments for
rectifying the same.
6.
In view of this position, this Court pronounced its judgment in the Writ
Petition (C) No. 715 of 2024 with the following operative directions:-
"83. In view of the decisions referred to above, we may
only say that since the respondents herein are already
in seisin of the anomaly in computation of royalty and
the policy is being reconsidered on the grounds raised
by the petitioners herein, we do not say anything further
as regards the provisions in question other than what
we have observed. We clarify that this decision shall not
preclude the petitioners from challenging the final policy
decision that the respondents may take on completion
of the ongoing consultation process.
84. In view of the aforesaid, we grant the respondents
a period of 2-months from the date of pronouncement
of this judgment to conclude the public consultation
process undertaken for amending the MMDR Act initiated
pursuant to the Notice dated 25.05.2022 and take a final
decisive call in regard to the cascading impact of royalty
on royalty in the calculation of the 'average sale price'
by virtue of the Explanation(s) to Rule 38 of the MCR,
2016 and Rule 45 of the MCDR, 2017.
85. The challenge to the validity of Explanation(s)
appended to Rule 38 of the MCR, 2016 and Rule 45 of
the MCDR, 2017 is answered accordingly.
86. The Registry shall notify this matter before an
appropriate Bench after a period of two months from
the date of pronouncement of this judgment to report
compliance of our directions."
7.
According to the petitioners, pursuant to the judgment dated
07.11.2024 in Writ Petition (C) No. 715 of 2024, a representation
was filed by them on 12.11.2024. This was followed up by filing I.A.
No. 22190 of 2025 before this Court on 24.01.2025. By an order of
03.02.2025, this Court directed the respondents to file a report or
an appropriate affidavit within two weeks pointing out the progress
in the matter subsequent to the pronouncement of the judgment.
[2026] 8 S.C.R.
111
Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
8.
According to the petitioners, an affidavit was filed on 21.02.2025
stating that the Department of Legal Affairs had concurred with the
proposal and the file was pending consideration before the Cabinet
Secretariat. A further order was made by this Court on 28.02.2025
granting one month's time to the respondents to file an appropriate
report or decision taken on this aspect. Since no decision was
taken, on 05.04.2025, the petitioners filed an affidavit highlighting
the state of affairs. Pursuant thereto, a last opportunity was given
to the respondents by an order of 08.04.2025.
9.
The Union of India filed an application seeking modification of order
dated 08.04.2025 stating that the Cabinet Secretariat would no
longer be preparing any proposal since it would be the concerned
Ministry itself which would be taking a decision and ultimately, on
17.05.2025, the Union of India filed an affidavit intimating its final
decision of not amending the rules as it would seriously impact the
revenue of the States.
10.
By an order of 19.05.2025, this Court made an order expressly
granting liberty to the petitioners to raise a fresh challenge to
the decision not to amend, on all grounds available to them in
law. Paras 8 to 11 of the order dated 19.05.2025 are extracted
hereinbelow.
"8. Since, the Central Government has taken a policy
decision not to reconsider the Rule 38 of the MCR,
2016 and Rule 45 of the MCDR, 2017 respectively in
consonance with what fell from this Court in the impugned
judgment, there is no other option left for the petitioners
but to question the legality and validity of such decision
by filing a fresh petition before this Court.
9. We grant liberty to the petitioners to question the
decision taken by the Central Government on all grounds
available to them in law.
10. If according to the petitioners the decision which the
Central Government has taken and placed on record
is not in the spirit of the original judgment of this Court
dated 07-11-2024 they may raise such ground in their
fresh petition.
11. With the aforesaid liberty we close this matter."
112
[2026] 8 S.C.R.
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11.
It must also be recalled that earlier in the main judgment of
07.11.2024, this Court had observed that since the respondents are
already in seisin of the anomaly in computation of royalty and the
policy is being reconsidered on the grounds raised by the petitioners
herein, this Court was not saying anything further as regards the
provisions in question other than what has been observed. This Court
also observed that the judgment of 07.11.2024 will not preclude
the petitioners from challenging the final policy decision that the
respondents may take. It is pursuant to the liberty granted that the
present petition has been filed.
BRIEF OVERVIEW OF THE FACTS: -
12.
The principal contention raised is that the Explanation appended to
Rule 38 of the 2016 Rules and the Explanation appended to Rule
45(8)(a) of the 2017 Rules, both of which include the payments made
towards royalty, District Mineral Foundation (DMF) and National
Mineral Exploration Trust (NMET) as a component of the sale value,
is ultra vires Section 9 of the MMDR Act. The impugned Rules are
set out hereinunder:-
"38. Sale Value.- (2016 Rules)
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.
45. Monthly and annual returns- (2017 Rules)
(8) In case of mining of minerals by the holder of a
mining lease, the -
(a)
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.
[2026] 8 S.C.R.
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Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
Explanation.- For the purpose of computing sale
value, no deduction from the gross amount shall be
made in respect of royalty, payments to the District
Mineral Foundation and payments to the National
Mineral Exploration Trust."
13.
The relevant sections and the Rules, which have a bearing in
deciding the controversy, are extracted hereunder:-
Section 9 of the MMDR Act
"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 sublessee 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 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:
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[2026] 8 S.C.R.
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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."
14.
Entry 24 of the Second Schedule
"Second Schedule
24. Iron Ore:
(CLO, Lumps, fines and
concentrates all grades)"
Fifteen per cent. of
average sale price on
ad valorem basis.
The main argument is that as per Section 9(2) read with Entry 24 of
the Second Schedule, what is prescribed is that the rate of royalty
will be 15% of average sale price on ad valorem basis. Ad valorem,
the petitioners contend, means according to value.
15.
Rule 42 of the 2016 Rules 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
[2026] 8 S.C.R.
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Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
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 for
the purpose of this rule and in such case, sub-clause
(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 noncaptive mines, and any merchant sale done by the
captive mines, computed in accordance with the
above provisions, the weight being the quantity
despatched from the mining lease area of mineral
grade/concentrate relevant to each ex-mine price."
16.
What is contended is that, by virtue of a subordinate legislation,
an explanation is appended in a manner as to deviate from the
concept of ad valorem by loading to the ad valorem, payments
made towards the royalty, DMF and NMET already paid. This, the
petitioners contend, is ultra vires Section 9 of the MMDR Act. The
further argument is that revision can only be once every three years.
17.
The stand of the Union of India is that this is a measure adopted
since there was price manipulation in iron ore. Hence, to save
revenue, this method was adopted. They also articulated the reason
why coal stands on a different footing by highlighting the difference
in the price fixation mechanism.
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PLEADINGS AND CONTENTIONS: -
18.
We have heard Dr. Abhishek Manu Singhvi, Mr. Balbir Singh,
learned Senior Counsels and Mr. Ninad Laud, learned Counsel for
the petitioners and Mr. R. Venkataramani, learned Attorney General
for India on behalf of the respondents.
PETITIONERS' CASE
19.
To understand the controversy, a brief enumeration of the averments
in the pleadings filed by the parties as well as the contentions made
by them are adverted to. Petitioner No. 1 is a Company holding a
mining lease in the State of Karnataka for the purpose of captive
production of pig iron at its manufacturing facilities in Koppal and Hiriyur
in Karnataka. Petitioner No. 2 is a shareholder of Petitioner No. 1.
20.
Pursuant to the amendment notified on 27.03.2015 to the Mines and
Minerals (Development and Regulation) Act, 2015, auction was made
the basis of allotment of mines. The Mineral (Auction) Rules, 2015
(hereinafter "the Auction Rules 2015) were also notified. Petitioner
No. 1 secured a mining lease after successfully participating in the
auction.
21.
Rules 8, 9 and 13 of the Auction Rules 2015, read as under:-
"8. Bidding parameters: - (1) The State Government
shall specify in the tender document the minimum
percentage of the value of mineral despatched, which
shall be known as the "reserve price."
(2) The value of mineral despatched shall be an
amount equal to the product of,-
(i) Mineral despatched in a month; and
(ii) Sale price of the mineral (grade-wise and
State-wise) as published by Indian Bureau of
Mines for such month of despatch.
(3) The bidders shall quote, as per the bidding
parameter, for the purpose of payment to the State
Government, a percentage of value of mineral
despatched equal to or above the reserve price
and the successful bidder shall pay to the State
Government, an amount equal to the product of,-
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Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
(i) percentage so quoted; and
(ii) value of mineral despatched.
(4) Where an area is being auctioned for more than one
mineral, the percentage of value of mineral desptched
as quoted by the successful bidder under sub-rule (3)
shall be applicable for the purpose of payment to the
State Government in respect of each such mineral.
(5) If subsequent to grant of a mining lease, one or more
new minerals are discovered, the percentage of value of
mineral despatched as quoted by the successful bidder
under sub-rule (3) shall be applicable for the purpose
of payment to the State Government in respect of each
such mineral.
9. Bidding Process.-
(1).....
(2).....
(3).....
(4) The auction shall be an ascending forward online
electronic auction and shall comprise of the following
rounds, namely:-
(a) First Round of Auction to be held in the following
manner, namely:-
(i) the bidders shall submit-
(A). a technical bid comprising amongst others,
documentary evidence to confirm eligibility as
per the provisions of the Act and the rules
made thereunder to participate in the auction,
bid security and such other documents and
payments as may be specified in the tender
document; and
(B) An initial price offer which shall be a
percentage of value of mineral despatched;
(ii) only those bidders who are found to be eligible
in accordance with the terms and conditions of
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eligibility specified in rule 6 and whose initial
price offer is equal to or greater than the reserve
price, referred to as "technically qualified bidders",
shall be considered for the second round of
auction;
(iii) the highest initial price offer amongst the
technically qualified bidders shall be the floor price
for the second round of online electronic auction;
(iv).....
(b) Second Round of Auction to be held in the following
manner, namely:-
(i) the qualified bidders may submit their final price
offer which shall be a percentage of value of mineral
despatched and greater than the floor price:
Provided that the final price offer may be revised till
the conclusion of the auction as per the technical
specifications of the auction platform;
(ii) The auction process shall be annulled if none of the
qualified bidders submits a final price offer on the online
electronic auction platform;
(iii) the qualified bidder who submits the highest final
price offer shall be declared as the "preferred bidder"
immediately on conclusion of the auction.
13. Payments under mining lease.-(1) The lessee
shall pay royalties and dead rent to the State
Government as specified in the Act and the rules
made thereunder.
(2) The lessee shall pay the applicable amount
quoted under rule 8 to the State Government on a
monthly basis.
(3) The lessee shall contribute such amounts as may
be required under the Act to-
(a) the designated account of the National Mineral
Exploration Trust; and
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Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
(b) the designated account of the District Mineral
Foundation.
(4) The lessee shall also pay such other amounts as
may be required under any law for the time being in
force to the concerned authorities."
22.
In exercise of powers under Sections 9C(2), (3), (4) and Section 13
of the MMDR Act, the Union of India notified the National Mineral
Exploration Trust Rules, 2015 ("the NMET Rules") which dealt with
the manner of deposit and disbursal of the funds collected under the
NMET. Under Rule 7 of the NMET Rules, the holder of mining lease
or prospecting license-cum-mining lease shall pay to the Trust a sum
equivalent to two per cent of the Royalty under sub-section (4) of
Section 9C of the MMDR Act by depositing the same in the Public
Account of the State under the Head booked for the said purpose.
23.
On 17.09.2015, in exercise of powers under Section 9B (5) and (6)
of the MMDR Act, Respondent No. 1-Union of India notified the
Mines and Minerals (Contribution to District Mineral Foundation)
Rules, 2015 ("the DMF Rules"). Rule 2(a) of the DMF Rules states
that every holder of a mining lease or a prospecting license-cummining lease shall, in addition to the royalty, pay to the District
Mineral Foundation of the District in which the mining operations
are carried on, an amount at the rate of ten percent of the royalty
paid in terms of the Second Schedule.
24.
As set out hereinabove, royalty under the Second Schedule for iron
ore was 15% of the Average Sale Price (ASP) on ad valorem basis
and that was payable under Section 9 of the MMDR Act. The net
result was, while there was a levy of 15% of ASP on ad valorem
basis towards royalty, there was a levy of 2% of the royalty towards
NMET, and there was a levy of 10% of the royalty towards DMF.
25.
Sale value in the manner provided under Rule 42(2) of the 2016
Rules and Rule 45(8) of the 2017 Rules was to be the basis for
the ex-mine price. Based on the ex-mine price, average sale price
is arrived at in the manner provided under Rule 42(3) of the 2016
Rules. The petitioners are aggrieved by the fact that the explanation
appended to both Rule 38 and Rule 45(8)(a), expressly prescribed
that no deduction from the gross amount shall be made in respect
of payments made towards royalty, payments to the DMF and
payments to the NMET.
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26.
As pointed out earlier, under Entry 24 of the Second Schedule, the
royalty was 15% of the average sale price on ad valorem basis.
Rule 42 of the 2016 Rules deals with the method of computation
of average sale price. Rule 42 of the 2016 Rules has already been
set out.
27.
It will be noticed that under Rule 42(3) of the 2016 Rules, the average
sale price of any mineral grade/concentrate in respect of a month
was the weighted average of the ex-mine prices of the non-captive
mines, computed in accordance with Rule 42(2), the weight being
the quantity despatched from the mining lease area of mineral grade/
concentrate relevant to each ex-mine price.
28.
Rule 43 of the 2016 Rules reads as under:-
"43. Publication of average sale price.- The Indian
Bureau of Mines shall publish the average sale price of
each mineral grade/concentrate removed from the mining
leases in a month in a State within 45 days from the due
date for filing the monthly returns as required under the
Mineral Concession Development Rules, 1988."
Under Rule 43 of the 2016 Rules, the Indian Bureau of Mines was
to publish the ASP of each mineral grade/concentrate removed
from the mining leases in a month in a State within 45 days from
the due date for filing the monthly returns as required under the
Mineral Concession Development Rules, 1988. Hence, post the
filing of the return and within 45 days, the Indian Bureau of Mines
notifies the ASP. It is while computing the ASP that the sale value
factor comes in and as a component of the sale value, payments
made towards royalty, DMF and NMET are not deducted which has
resulted in the petitioners being aggrieved.
29.
Under Rule 45 of the 2017 Rules, monthly and annual returns are
obliged to be filed by the lessee. The monthly return was to be filed
online before the 10th of every month. The return was to be in the
prescribed Form. Amongst the other things required in the Form is
the extent of iron ore despatched during the month.
30.
According to the petitioners, the impugned provisions result in the
payment of royalty on royalty and further it results in payment of
royalty, DMF and NMET twice in case of auctioned mines, that is,
once as part of auction premium and a second time upon removal
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Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
of the minerals. According to the petitioners, under Rule 8 of the
Auction Rules, 2015, a reserve price is to be fixed. Under Rule 8(2),
the value of mineral despatched was to be an amount equal to the
product of the mineral despatched in a month and sale price of the
mineral (grade-wise and State-wise) as published by the Indian
Bureau of Mines for such month of despatch and under Rule 8(3), the
bidder was to quote, as per the bidding parameter, for the purpose of
payment to the State Government, a percentage of value of mineral
despatched equal to or above the reserve price. They contend that as
part of the auction premium also, the ASP notified by Indian Bureau
of Mines, comes into operation. According to them, if the ASP is to
be loaded with the amount paid towards royalty, DMF and NMET,
it tantamounts to double payment at the stage of computation of
premium. Further, at the time of removal of mineral also they are
obliged to pay royalty, DMF and NMET, which in turn, is based on
the average sale price. Here again, they contend that the failure to
deduct royalty, DMF and NMET constitutes payment of royalty on
royalty with a cascading effect. Petitioners contend that it amounts
to increasing the rate of royalty as it leads to a compounding effect
on payment of royalty.
31.
According to the petitioners, Rule 38 of the 2016 Rules and Rule
45 of the 2017 Rules, more particularly, the explanations thereof,
which permit this cascading effect, are ultra vires Section 9 of the
MMDR Act, since Section 9 read with the Schedule is based on
the concept of ad valorem. According to them, the plain meaning of
ad valorem is according to value and there cannot be any artificial
addition to the value.
32.
Pointing to Entry 10 of the Second Schedule dealing with Coal, they
contend that for Coal under the Notes appended to the Second
Schedule with effect from 14th July, 2020, the cascading effect which
was prevailing for the said product was rectified by introducing the
following clause.
"Notes:
Explanation:- For the purposes of this sub-entry.-
(i)...........
(ii) Actual price means the sale invoice value of
coal, net of statutory dues including taxes, levies,
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royalty, contribution to National Mineral Exploration
Trust and District Mineral Foundation."
33.
According to the petitioners, the anomaly was rectified, vis-à-vis
Coal with effect from 14.07.2020. The petitioners refer to the notice
for public consultation issued on 25.05.2022 where the anomaly
of cascading effect was highlighted and how a proposed clause
excluding the components was suggested. Thereafter, the petitioners
point to the writ petition filed being Writ Petition No. 715 of 2024
which has already been discussed hereinabove. The petitioners
also adverted to the judgment of this Court dated 07.11.2024. The
petitioners contend that based on the judgment of 07.11.2024, they
filed a representation on 12.11.2024 and consequential proceedings
in this Court.
34.
The petitioners contend that the explanations appended to Rule
38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules are
ultra vires the MMDR Act, violative of Articles 14 & 19(1)(g) of the
Constitution of India as being manifestly arbitrary. The petitioners
contend that while all conceivable expenditure is excluded yet the
impugned explanations add payments made towards royalty, DMF
and NMET contributions. They contend that, being expenses, it
ought not to be part of the average sale price. The petitioners seek
to demonstrate by the following chart appended to the writ petition
about the purported cascading effect in the levy:-
Description
Existing
(with
anomaly)
If anomaly
is
removed
Difference
(Excess
payment)
Average sale price =
Ex-mine (100)+ Royalty (15)+
DMF (4.5)+ NMET (0.3)
119.80
100
19.8
Applicable Amount/Premium
(assuming 100%)
119.80
100
19.8
Royalty, DMF, NMET to be
paid by lease holders on
Average sale price including
Ex-mine + Royalty + DMF +
NMET
20.13
16.8
3.33
Premium + Royalty + DMF
+ NMET
139.93
116.8
23.13
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Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.
35.
The petitioners further contend that under the proviso to Section 9(3)
of the MMDR Act, a fixed royalty is contemplated for three years
whereas by this process there is change every month.
36.
Petitioners also referred to the recommendations of Shri Praveen
Kumar and Dr. Aruna Sharma Committees which, according to
them, recommended the amendment to remove the purported
cascading effect. Aggrieved with the inaction of the Union and by
virtue of the liberty granted by this Court, the present writ petition
has been filed.
RESPONSE OF THE UNION OF INDIA: -
37.
The writ petition was vehemently opposed by the Union of India
represented by the learned Attorney General. The principal argument
on maintainability is that there is no violation of fundamental right
either under Article 14 or Article 19(1)(g). It is also contended that
the provisions were not ultra vires the provisions of the MMDR
Act. It was submitted that Section 9 of the MMDR Act read with
the Second Schedule authorised the fixation of the rates of royalty
as well as the method of computation of royalty and manner of
payment of royalty.
38.
Elaborating further, it is contended that under the Second Schedule,
the royalty on minerals is levied either on ad valorem basis or on
tonnage basis.