Supreme Court Upholds Rules on Royalty, DMF and NMET
ECONOMY & POLICY

Supreme Court Upholds Rules on Royalty, DMF and NMET

The Supreme Court (SC) has upheld the constitutional validity of explanations appended to Rule 38 of the Minerals Concession Rules, 2016 and Rule 45(eight)(a) of the Mineral Conservation and Development Rules, 2017, finding that inclusion of royalty, District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) contributions in sale value for computing the Average Sale Price (ASP) is a valid anti?evasion measure. A Bench of Justice JB Pardiwala and Justice KV Viswanathan dismissed a writ by Kirloskar Ferrous Industries Ltd. and another. The Bench held the provisions did not violate Articles 14 or 19(one)(g) or exceed Section nine of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act).

The Court said the explanations prescribe a computational methodology for sale value used in determining the ASP and do not alter the rate or nature of royalty. It noted that royalty on iron ore is payable at 15 per cent of the ASP under Section nine of the MMDR Act and that payments towards royalty, DMF and NMET are not to be deducted when computing sale value.

Accepting the Centre's justification, the Bench observed that the ASP is derived from market transactions reported by miners and is susceptible to manipulation. The Government produced charts and data alleging that miners reported higher ex?mine prices for negligible dispatches and lower prices for larger dispatches, depressing weighted ASP and statutory receipts. The methodology was linked to preventing such manipulation and safeguarding public revenue.

The Bench rejected claims of arbitrariness and recalled that courts should be cautious in interfering with fiscal measures aimed at curbing tax or revenue evasion. It found the comparison with coal inapt because coal pricing uses the National Coal Index while iron ore ASP depends on miner?reported market data. The petitioners' contention that inclusion of royalty, DMF and NMET resulted in payment of royalty on royalty was dismissed given the Government's competence to define components of sale value to check manipulation.

The Court held that the proviso to Section nine(three) did not apply because the Rules do not alter royalty rates but prescribe computation of sale value and ASP. It observed that committee recommendations are recommendatory and dismissed the writ, upholding the Centre's royalty computation framework under the MMDR regime.

The Supreme Court (SC) has upheld the constitutional validity of explanations appended to Rule 38 of the Minerals Concession Rules, 2016 and Rule 45(eight)(a) of the Mineral Conservation and Development Rules, 2017, finding that inclusion of royalty, District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) contributions in sale value for computing the Average Sale Price (ASP) is a valid anti?evasion measure. A Bench of Justice JB Pardiwala and Justice KV Viswanathan dismissed a writ by Kirloskar Ferrous Industries Ltd. and another. The Bench held the provisions did not violate Articles 14 or 19(one)(g) or exceed Section nine of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act). The Court said the explanations prescribe a computational methodology for sale value used in determining the ASP and do not alter the rate or nature of royalty. It noted that royalty on iron ore is payable at 15 per cent of the ASP under Section nine of the MMDR Act and that payments towards royalty, DMF and NMET are not to be deducted when computing sale value. Accepting the Centre's justification, the Bench observed that the ASP is derived from market transactions reported by miners and is susceptible to manipulation. The Government produced charts and data alleging that miners reported higher ex?mine prices for negligible dispatches and lower prices for larger dispatches, depressing weighted ASP and statutory receipts. The methodology was linked to preventing such manipulation and safeguarding public revenue. The Bench rejected claims of arbitrariness and recalled that courts should be cautious in interfering with fiscal measures aimed at curbing tax or revenue evasion. It found the comparison with coal inapt because coal pricing uses the National Coal Index while iron ore ASP depends on miner?reported market data. The petitioners' contention that inclusion of royalty, DMF and NMET resulted in payment of royalty on royalty was dismissed given the Government's competence to define components of sale value to check manipulation. The Court held that the proviso to Section nine(three) did not apply because the Rules do not alter royalty rates but prescribe computation of sale value and ASP. It observed that committee recommendations are recommendatory and dismissed the writ, upholding the Centre's royalty computation framework under the MMDR regime.

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