As per case facts, petitioners initially challenged the validity of rules governing royalty calculation, arguing that including payments towards royalty, District Mineral Foundation (DMF), and National Mineral Exploration Trust (NMET) ...
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2026 INSC 679 Page 1 of 82
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
WRIT PETITION (C) NO. 733 OF 2025
Kirloskar Ferrous Industries Ltd. and Anr. ……. Petitioners(s)
Versus
Union of India & Anr. ……. Respondent(s)
J U D G M E N T
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 ...………………………………………….4 3
E. ANALYSIS AND DISCUSSION …………………………………………..………… 44
F. MAINTAINABILITY AND ESTOPPEL ………………………………………..….4 4
Page 2 of 82
G. CERTAIN FUNDAMENTAL PRINCIPLES ………………………………..……. 45
H. PRESUMPTION OF CONSTITUTIONALITY ……………………………………4 6
I. LIBERAL CONSTRUCTION OF LEGISLATIVE ENTRIES …………………….4 7
J. NATURE OF ROYALTY ………………………………………………………………4 9
K. CONSIDERATION OF THE LEGAL PROVISIONS IN ISSUE HEREIN …….50
L. MEASURE OF LEVY AND NATURE OF LEVY ………………………………….5 3
M. MEASURE OF LEVY – AS AN ANTIDOTE TO CHECK EVASION ….…….60
N. APPLICATION OF LAW TO THE FACTS …………………………………….…. 71
O. CONCLUSION ………………………………………………………………………..8 1
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,
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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
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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 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
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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
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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 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
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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.
Page 8 of 82
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.
Page 9 of 82
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.”
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
Page 10 of 82
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.
Page 11 of 82
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.
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
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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 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.”
14. Entry 24 of the Second Schedule
“Second Schedule
24. Iron Ore: Fifteen per cent. of average sale
(CLO, Lumps, fines price on ad valorem basis.
and concentrates all
grades)”
Page 13 of 82
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 from time-to-
time, divided by the total quantity sold.
Page 14 of 82
(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 non-
captive 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.
Page 15 of 82
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.
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
Page 16 of 82
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
Page 17 of 82
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,-
(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;
Page 18 of 82
(ii) only those bidders who are found to be eligible
in accordance with the terms and conditions of
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
Page 19 of 82
(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
Page 20 of 82
a prospecting license-cum-mining 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
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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.
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:-
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“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 10
th
of every month.
The return was to be in the prescribed Form. Amongst the
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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 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
Page 24 of 82
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
Page 25 of 82
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 14
th
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, 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
Page 26 of 82
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, DM F 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:-
Page 27 of 82
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
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
Page 28 of 82
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. The Union of India
contends that the rate of royalty and the method of
computation is different from mineral to mineral. It is
Page 29 of 82
contended that fixation of rates of royalty is covered within
the scope of “regulation of mines and mineral development”.
It is submitted that the object of empowering the Central
Government to specify rates of royalty for major minerals
was to ensure a certain level of uniformity in mineral prices
in view of the domestic and international market.
39. The judgment in Writ Petition (C) No. 715 of 2024 was
cited by the Union of India in their support. It is contended
that pursuant to the judgment of this Court dated 07.11.2024
in Writ Petition (C) No. 715 of 2024, extensive consultation
process was undertaken and for good and valid grounds, it
was decided not to amend the Act and the Rules as they now
stand. It is submitted that there is nothing capricious or
irrational about the impugned rules warranting judicial
review under the doctrine of manifest arbitrariness.
40. According to the Union of India, the impugned rules
simply explain the mechanism under which the sale value is
to be calculated by taking into account all the payments that
Page 30 of 82
a leaseholder has to make to the government. It is submitted
that comparison of methodologies of calculation of royalty for
different minerals and to make a point of discrimination is
completely untenable as for some minerals, the levy is on
tonnage basis; some are based on international prices and
some are on ASP arrived on the basis of returns. Even for the
same mineral, there are different methodologies.
41. The Union submitted that comparison with coal was
completely unjustified. It was submitted that there was
monopoly in coal production by Coal India Limited and
Singareni Collieries Company Limited. Unlike coal, in iron
ore, various small and large private sector miners operate in
the market. This necessitated the evolution of a mechanism
like ASP for calculation of royalty to deal with the menace of
under-invoicing.
42. The Union of India contended that for auction of coal
blocks for commercial mining, from 2020, royalty was to be
calculated on notional price or the actual price of coal
Page 31 of 82
whichever is higher. The Union of India contends that
notional price is arrived from the National Coal Index [NCI].
Elaborating further, it was contended that the NCI is a price
index combining the prices of coal from three sales
channels:
i) notified prices of Coal India Limited and Singareni
Collieries Company Limited (both Public Sector
Undertakings);
ii) auction prices of Coal India Limited and Singareni
Collieries Company Limited; and
iii) import prices.
It was contended that the NCI price was adopted to check the
issue of under-invoicing when coal production started from
commercial mines. The Union of India contended that under
Article 14, only equals ought to be treated equally and not
unequals equally and that there is no violation of Article 14
by treating coal and iron ore differently, in the manner of
levy.
Page 32 of 82
43. It is further contended that laws relating to economic
activity should be viewed with greater latitude and crudities
and inequities in complicated experimental economic
legislation are bound to exist and that cannot be a ground to
strike it down. It is contended that there must be free play in
the joints to experiment in the economic policy.
44. The Union of India contends that ASP is dependent upon
market forces and is not decided by the government. In fact,
it is contended that ASP is calculated based on the data given
by the miners. It is denied that there is continuous increase
in royalty on a month-to-month basis, as according to the
Union, the ASP of each month is separately compiled and
there is no impact of ASP of previous month in the ASP of the
following month.
45. Disputing the chart handed over by the petitioners, the
learned Attorney General, in turn, relied on the following
chart:
“1…..
Page 33 of 82
The correct representation of computation of ASP will be as follows:
Scenario/
Month
Basis for
calculating
royalty
(ASP)
Total levies
payable
[16.95% of
the ASP, i.e.,
royalty 15%
of ASP +
DMF (10%
of 15%) =
1.5% +
NMET (3%
of 15%) =
0.45%]
Effective
rate of
royalty,
DMF and
NMET
payment on
the Mineral
Value
Excess
Payment
Jan. 2026 Rs.100.00
(Actual/ex
mine price)
Rs.16.95 16.95% No
Feb. 2026 Rs.105.00
(Actual ex
mine price)
Rs.17.80 16.95% No
Mar. 2026 Rs.98.00
(Actual ex
mine price)
Rs.16.61 16.95% No
Mar. 2027 Rs.110.00
(Actual ex
mine price)
Rs.18.65 16.95% No
2. ASP for each month is determined based on returns for
the said month. Previous month ASP is not carried forward.
Thus, in the above scenarios, ASP of Month of Feb., 2026 is
different from ASP for month of Jan., 2026 and depends on
market price on which the mineral is sold.
• Each month's ASP is derived from a fresh, independently
declared ex-mine price.
• The effective statutory rate remains constant.
• There is no mathematical mechanism by which levies
paid in one month influence the base of the next month.
Hence, compounding or cascading is impossible.”
Page 34 of 82
46. It is submitted that policy decisions ought not to be
lightly interfered with. Dealing with the Committees headed
by Shri Praveen Kumar and Dr. Aruna Sharma, it was
contended that they are recommendatory in nature and
cannot have any binding force.
47. Contending that there is price manipulation and that
lessees are keen to revise the calculation of ASP to reduce
the burden of premium which they had quoted in the auction
voluntarily, it is submitted that since the lease premium is a
percentage of ASP and the premium amounts are significant,
there have been instances of deliberate manipulation.
48. An additional affidavit dated 02.02.2026 has been filed
explaining the evolution of the royalty regime since
inception. In the said affidavit, elaborating on the concept of
ASP, it is submitted that it was a mechanism introduced to
address the mischief/issue of under-invoicing of mineral
sales by lessees and to arrive at true sale value of the
mineral.
Page 35 of 82
49. It is submitted that instances have emerged where even
under the regime of the 2016 Rules, miners were trying to
reduce the sale value in an attempt to lower the ASP.
According to the Union, this undermined the statutory
scheme of royalty and was causing substantial loss to the
exchequer.
50. Dealing with the cases of States of Orissa and Karnataka
and the manipulation of ASP of iron ore by the lessees during
the period between August, 2022-January, 2023, a note was
appended to the affidavit. The following extract from the
note is significant: -
“While calculating the ASP of Iron ore in certain
grades for the Month of August-22 to January-23, it
was observed that ASP was considerably lower
compared to the previous month during few
consecutive months, despite of the fact that ex-mine
price reported by the individual mine was almost at
the same level that of previous month. An analysis of
despatches was made by the IBM based on the last 6
months data from August -22 to January-23 and
revealed that there is a drastic change in pattern of the
production and despatches by some of the lease
holders during last 6 months. This may be probably
due to some malpractices adopted by some
unscrupulous miners. Miners who have reported
higher ex-mine price in the previous month has made
no despatches in the subsequent months that
Page 36 of 82
distorted/lowered the monthly ASP as published by
IBM. Based on the analysis following has been
observed:
A. Odisha
1. ASP for Grade 51% to 55% Fe lumps
The ASP of grade 51% to 55% Fe lumps was lowered by
43% in the month of September-22 against August-22;
ASP was again slightly increased in the month of
October-22 and November-22 and again falls down in
the month of December-22 resulting about 50% fall in
ASP from August 22. On analysing the despatches and
EMP data, it was observed that the two mines those
have reported the highest ex-mine price in the month of
August-22 with about 25% of despatch (each mine) are
not despatching or despatching very less quantity in
the subsequent months; at the same time the mine
which have reported lowest EMP in the month of
August-22 increased its despatches from less than 50%
in August-22 to almost 100% in December-22, which
distorted and decreased the ASP from August 22 to
January 23 by approximately 50%. The graph and
Table depicting the changes in, EMP, D espatch
Quantity and ASP is given as below:
Page 37 of 82
Grade wise despatch and ex-mine price from August 22 to January 23
Name of Mine
(Mine Code)
Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23
Ex-
Mine
Price
Des
patc
h
Ex-
Mine
Price
Des
patc
h
Ex-
Mine
Price
Despa
tch
Ex-
Mine
Price
Despa
tch
Ex-
Mine
Price
Despa
tch
Ex-
Mine
Price
Despa
tch
BHANJPALI
(30ORI13043)
3043 738 3400 403 3372 829
NUAGAON1
(40ORI13050)
3100 700 2600 1974 2600 24
RAIKELA &
TANTRA
(30ORI13035)
1459 1246 1232 9357 1287 12396 1233 5998 1346 17865 1200 4081
B. Karnataka
1. Grade 45% Fe to 51% Fe Lumps
The ASP of grade 45% to 51% Fe lumps was down by 63%
in the month of September 22 as compared to the August
22 and 33% in the month of November-22 as compared to
October-22. On analysis, it was observed that in the
month of September-22 four mines have reported
despatches and the main reasons for lowering of ASP
was changes in reporting pattern of Narayana Iron
Ore Mine (30KAR03188) mines of JSW. Being a Non -
Captive Mine and as nature of use is Captive
Consumption, Narayana Iron Ore Mine (30KAR03188)
mines of JSW have reported about 80% (42237t) of total
despatches in this grade with applicable IBM
published price as per rule 43 of MCR 2016 i.e. ASP of
July 2022 during the month. i.e. Rs 771/t, whereas, in
the month of August when applicable ASP was Rs.
1831/t the same mine had reported only 226 tons of
despatches. Secondly, the Haddinapade Mines
reported an EMP of 2243 with 93% despatches
reported nil despatches in the month of September-22.
Further, Narayana Iron Ore Mine (30KAR03188) mines
of JSW reported an EMP of Rs. 2215/t with a despatch
of 55% in the month of October-22, however, reported
nil despatches in the month of November -22. The
graph and Table depicting the changes in ASP and
despatches is given as below:
Page 38 of 82
Grade wise despatch and ex-mine price from August 22 to January 23
Name of Mine (Mine Code)
Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23
Ex-
Min
e
Pric
e
Des
patc
h
Ex-
Min
e
Pric
e
Des
patc
h
Ex-
Min
e
Pric
e
Des
patc
h
Ex-
Min
e
Pric
e
Des
patc
h
Ex-
Min
e
Pric
e
Des
patc
h
Ex-
Min
e
Pric
e
Des
patc
h
DINDADAHALLI FE ML 2658 26.35
ACRES (30KAR07034)
1198 1860 1568 8070 1314 5434 1745 2636
DONIMALAI5320H 30KAR03113
(30KAR03113)
690 4000 741 32000
HADDINAPADE (30KAR03156) 2243 3000 1179 5914 1179 6086 1121 12000 1078 16392 1078 3176
HARGINADONA (30KAR03133) 846 419 894 171 894 420 890 9097 890 49
KAREKURCHI (ML 2028)
(40KAR19021)
890 890 14973
NARAYANA IRON ORE MINE
(30KAR03188)
1837 226 771 42237 2215 9799
Sankalapuram 188
AC(30KAR03065)
1745 6000
Smt. Susheelamma
mine(40KAR07023)
1800 4000
Page 39 of 82
Conclusion
Based on the above it is concluded that in most of
the cases the ASP's as calculated based on weighted
average of EMP's, where d espatched quantity is
taken as the weight. However, at some instances the
change in calculated ASP's is significant and reason
for the same is a drastic change in the despatched
pattern by the individual mines, where few of the
mines have quoted the lowest EMP's in one month
and had suddenly increased its d espatches in
another month. Secondly, at some instances few of
the mines have quote the higher ex-mine price in
one month but have either reduced the despatched
quantity or made no d espatches in subsequent
months. In both the cases it lowers the ASPs of that
month or subsequent months in different grades and
for different States.”
Similar trend has been demonstrated for other grades of iron
ore in the State of Orissa and similar trend has been noticed
in other grades of iron ore in the State of Karnataka also.
51. It is contended by taking the example of the two States
that where the average of the ex-mine price [EMP] was low,
higher despatches were shown and where higher EMP was
shown, reduced despatch quantity was shown. The idea,
according to the Union of India, was to reduce the ASP on
both counts in different grades of iron for different sets.
Page 40 of 82
52. It is vehemently contended that regulatory interventions
squarely attracted the provisions to suppress the mischief
and advance the remedy and to arrive at the fair value of the
mineral. The Union of India further contended that the
petitioners are estopped from challenging since they have
participated in the auction with full notice. It is also
submitted that the rule is very clear and for any future
auction also the parties are put on notice.
53. Dealing with the estimated loss for the State
Governments in case the explanations are struck down, the
Union of India, in its counter affidavit, dated 25.11.2025 avers
as follows: -
“65. That it is submitted that challenge to the Rule that
defines sale value has a larger implication in the auction
regime as currently more than 585 mineral blocks have
been successfully auctioned in the Country after
introduction of auction for mineral blocks in 2015 and the
basis for calculation of reserve price is the ASP. It is
further submitted that the Rules sought to be
impugned, is considered, the same shall have wide
ramifications on the mineral blocks already auctioned
and would tantamount to change in the conditions of
the tender(s) pursuant to which the successful miners
have got the mines. Such change in measure of royalty
and auction premium are as essential components of
auction. Those who participated in auction and
Page 41 of 82
decided to quote low auction premium considering the
explanation to Rule 38 of MCR 2016 would claim that
auction parameters have been changed post -auction
and would allege undue enrichment and unfair benefit
to the preferred/successful bidder. Successful bidders
for all the blocks auctioned are selected based on the
existing definition of sale value.
66. Applying changes on existing non-auctioned and
auctioned mining lease would result in lower royalty
and auction premium payable to States. The
committee that suggested changes regarding royalty
on royalty calculated that for an ad valorem royalty
rate of 15%, there would be reduction of State revenue
to an extent of 15 to 17%. Since, 2015, more than 585
mineral blocks have been auctioned. The estimated
loss to the State Government due to revenue reduction
would run into lakhs of crore rupees and there would
be commensurate benefit to the existing lease
holders.
67. It is stated that the Answering Respondent had
calculated a loss of around Rs.1.94 to 2.20 lakh crore
over the next 50 years, i.e., around Rs. 4000 crore per
year for just 149 auctioned MLs (auctioned till April,
2022).
68. It is submitted that during FY 2023-24, the iron ore
production in the country was 277 million tonnes out of
which the share of auctioned mines was 66 million tonnes
(39 working mines) and 211 million tonnes was produced
from non-auctioned mines (140 working mines). The total
value of 277 million tonnes of iron ore produced in the
country was approximately Rs. 1 lakh crore.
72. It is submitted that the total loss of revenue to the
State Governments based on FY 2023 -24 production
data would be approximately Rs. 6,200 crore per year.
This loss would accrue each year for the entire lease
period of 50 years. Thus, the total loss to the State
Governments if both the production and prices remain
at FY 2023-24 level, would be more than Rs. 3 lakh
crore. Further, this loss is only for mineral iron ore. If
Page 42 of 82
other minerals are also taken into consideration then
the loss would increase further.
73. it is submitted that with passage of time, more number
of auctioned mines will come into production and non-
auctioned mines would keep expiring. Therefore, the
share of production of iron ore from auctioned mines
would increase substantially in the coming years. The
Central Government has envisaged a production target of
450 million tonnes of iron ore in FY 2029-30 in line with
the requirement of the Steel industry as per the National
Steel Policy, 2017.
74. Even if it is assumed that the prices of iron ore remain
constant at 2023-24 levels, the value of 450 million tonnes
of iron ore produced in FY 2029-30 would be around 1.6
lakh crores. It may be assumed that the share of
production of iron ore from non-auctioned mines would
be 250 million tonnes in 2029-30 and remaining 200
million tonnes would be produced from auctioned mines.
76. Therefore, the total loss of revenue based on
estimated production in FY 2029-30 based on 2023-24
prices would be approximately Rs. 14,000 per year
just for iron ore alone. This loss when extrapolated
over the lease period of 50 years would be
approximately Rs. 7 lakh crore. This amount would
obviously increase with increase in operationalization
of auctioned mines and increase in value of minerals
and their production. Further, even other minerals are
also taken into consideration, as the rules applies to
all minerals, the loss would be in lakhs of crores over
the lease period.”
54. The petitioners, in their rejoinder affidavit dated
06.12.2025, while disputing the contentions of the Union,
advert to the following chart to demonstrate how the existing
method of computation of ASP under the impugned rules is
Page 43 of 82
resulting in a cascading impact on the payments of royalty by
enhancing the rate of royalty every month: -
Scenario
Basis for
Calculating
Royalty (ASP)
Total levies
Payable
(16.95% of
the ASP)
Effective
Rate of
royalty, DMF
and NMET
payment on
the Mineral
Value
Excess
Payment
(occasioned
due to the
anomaly)
Ideal Scenario
(If no anomaly)
Rs. 100/-
(Actual ex-mine price)
Rs. 16.95 16.95% Rs. 0.00
Scenario with
anomaly
Rs. 116.95 / (ex-mine
price + levies)
Rs. 19.82 19.82 %
+ 2.87
(Immediate
Inflation)
Cascading
Impact (Month 2)
Rs. 119.82
(Value + Month 1
levies)
Rs. 20.30 20.30%
+ 3.35
(Compounding
starts)
Cascading
Impact (Month 3)
Rs. 120.30
(Value + Month 2
levies)
Rs. 20.39 20.39%
+ 3.44
(Further
Inflation)
True Value of Mineral (Ex-Mine Price): Rs.100.00
Total Statutory Levies: 16.95% (Royalty 15% + DMF 1.5% + NMET
0.45%)
QUESTION FOR CONSIDERATION : -
55. In the above background, the question that arises for
consideration is whether the explanations appended to Rule
38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules are
Page 44 of 82
ultra vires Article 14 and Article 19(1)(g) of the Constitution
as well as Section 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?
ANALYSIS AND DISCUSSION : -
56. Before addressing the core issue, we need to clear the
deck by dealing with certain preliminary aspects which were
argued before us.
MAINTAINABILITY AND ESTOPPEL : -
57. On behalf of the Union, it was feebly contended that the
writ petition is not maintainable since there was no violation
of fundamental rights under Articles 14 and 19(1)(g) of the
Constitution of India. It was argued that there was also no
case made out about the impugned provisions being ultra
vires the MMDR Act. These are not arguments on
maintainability but are aspects dealing with the merits of the
matter.
Page 45 of 82
58. In any event, the aspect of maintainability need not
detain us any further as this Court, in its order of 19.05.2025,
set out hereinabove, expressly reserved liberty for the
petitioners to challenge the decision of the government. This
order of 19.05.2025 was made pursuant to the judgment of
07.11.2024.
59. Equally, the argument that the petitioners are estopped
from challenging since they participated in the auction, does
not appeal to us. The petitioners are challenging the validity
of certain Rules. Irrespective of the fact that the Rule was on
the Statute Book when they participated in the auction, this
Rule will operate for future purposes also.
CERTAIN FUNDAMENTAL PRINCIPLES :-
60. While navigating the aspect of constitutional validity of
explanation to Rule 38 of the 2016 Rules and the explanation
to Rule 45(8)(a) of the 2017 Rules, we need to bear in mind
certain basic legal principles which will help us to resolve
this conundrum.
Page 46 of 82
PRESUMPTION OF CONSTITUTIONALITY :-
61. At the very outset is the fundamental principle - the
presumption of constitutionality. Today, it is beyond cavil
that the presumption of constitutionality not just applies to
plenary legislation but also to subordinate legislation. Of
course, it is a rebuttable presumption and the burden will be
on the petitioners to displace the presumption.
62. In State of Tamil Nadu and Another vs. P.
Krishnamurthy and Others,
1 R.V. Raveendran J., speaking
for this Court, felicitously set out the aspect of presumption of
constitutionality in the context of subordinate legislation
thus: -
“15. There is a presumption in favour of
constitutionality or validity of a subordinate
legislation and the burden is upon him who attacks it
to show that it is invalid. It is also well recognised that a
subordinate legislation can be challenged under any of
the following grounds:
(a) Lack of legislative competence to make the
subordinate legislation.
(b) Violation of fundamental rights guaranteed under the
Constitution of India.
1
(2006) 4 SCC 517
Page 47 of 82
(c) Violation of any provision of the Constitution of India.
(d) Failure to conform to the statute under which it is
made or exceeding the limits of authority conferred by
the enabling Act.
(e) Repugnancy to the laws of the land, that is, any
enactment.
(f) Manifest arbitrariness/unreasonableness (to an extent
where the court might well say that the legislature never
intended to give authority to make such rules).
16. The court considering the validity of a subordinate
legislation, will have to consider the nature, object and
scheme of the enabling Act, and also the area over which
power has been delegated under the Act and then decide
whether the subordinate legislation conforms to the
parent statute. Where a rule is directly inconsistent with a
mandatory provision of the statute, then, of course, the
task of the court is simple and easy. But where the
contention is that the inconsistency or non-conformity of
the rule is not with reference to any specific provision of
the enabling Act, but with the object and scheme of the
parent Act, the court should proceed with caution before
declaring invalidity.”
LIBERAL CONSTRUCTION OF LEGISLATIVE ENTRIES :-
63. The second principle to be borne in mind is that
legislative entries which are fields demarcated under the
Seventh Schedule are to be liberally construed and would
take in subsidiary and ancillary matters. The MMDR Act,
which is the enabling Statute under which the Rules are
enacted, is legislated pursuant to the field demarcated under
Page 48 of 82
Entry 54 of List I. In Sardar Baldev Singh vs. CIT, Delhi &
Ajmer
2, this Court held that legislative entries have to be
read in a very wide manner so as to include all subsidiary
and ancillary matters.
64. In Mineral Area Development Authority & Anr. vs. M/s
Steel Authority of India and Another,
3 this Court, while
explaining how the fixation of rates of royalty under Section 9
read with the Second Schedule is covered within the scope of
“Regulation of Mines and Mineral Development” held as
under: -
“144. The expression “regulation of mines” can be
understood in the backdrop of above discussion to mean
the management of both the process of extracting
minerals as well as the place where such minerals will be
extracted from sub-surface levels. The MMDR Act gives
shape and meaning to the expression “regulation of
mines and mineral development” through its provisions
and the subordinate rules. To that effect, we find
provisions under the MMDR Act pertaining to prospecting
or mining operations under lease or licence, [MMDR Act,
Section 4] restrictions on the grant of mineral concessions,
[MMDR Act, Section 5] periods for which prospecting
licences [MMDR Act, Section 7] or mining leases
[MMDR Act, Section 8] may be granted or renewed, and
royalties in respect of mining leases. [MMDR Act, Section
9] Chapter III deals with the procedure for obtaining
2
1960 SCC OnLine SC 147/[1961] 1 SCR 482
3
(2024) 10 SCC 1
Page 49 of 82
mineral concessions in respect of land in which the
minerals vest in the Government. Chapter IV empowers
the Government to frame rules for regulating the grant of
mineral concessions. Chapter V deals with the special
powers of Central Government to undertake prospecting
or mining operations in respect of lands in which the
minerals vest in the Government of a State or any other
person. [ MMDR Act, Section 17] Thus, Chapters II to V of
the MMDR Act invariably deal with aspects regulating the
place of extraction of minerals and the process by which
mines are worked. These provisions govern aspects such
as conceding land to a person for carrying out mining
operations (mining concession) or granting licences for
working mines and winning minerals, which are integral
to the concept of “regulation of mines”. The fixation of
rates of royalty under Section 9 read with the Second
Schedule is also covered within the scope of “regulation
of mines and mineral development”.
65. Similarly in Union of India vs. A. Sanyasi Rao,
4 this
Court held that the legislature has got a wide discretion to
pick and choose persons and objects for legislating and even
the rates for taxation.
NATURE OF ROYALTY: -
66. In Mineral Area Development Authority (supra), dealing
with the nature of Royalty, this Court held as under: -
“133. There are major conceptual differences between
royalty and a tax:
4
(1996) 3 SCC 465
Page 50 of 82
(i) the proprietor charges royalty as a consideration for
parting with the right to win minerals, while a tax is an
imposition of a sovereign;
(ii) royalty is paid in consideration of doing a particular
action, that is, extracting minerals from the soil, while tax
is generally levied with respect to a taxable event
determined by law; [Goodyear (India) Ltd. v. State of
Haryana, (1990) 2 SCC 71, para 27] and
(iii) royalty generally flows from the lease deed as
compared to tax which is imposed by authority of law.
134. Under the MMDR Act, the Central Government fixes
the rates of royalty, but it is still paid to the proprietor by
virtue of a mining lease. In case the minerals vest in the
government, the mining lease is signed between the State
Government (as lessor) and the lessee in pursuance of
Article 299 of the Constitution. Through the mining lease,
the Government parts with its exclusive privilege over
mineral rights. A consideration paid under a contract to
the State Government for acquiring exclusive privileges
cannot be termed as an impost. Since royalty is a
consideration paid by the lessee to the lessor under a
mining lease, it cannot be termed as an impost.
365.1 Royalty is not a tax. Royalty is a contractual
consideration paid by the mining lessee to the lessor for
enjoyment of Mineral rights. The liability to pay royalty
arises out of the contractual conditions of the mining
lease. The payments made to the government cannot be
deemed to be a tax merely because the statute provides
for their recovery as arrears.”
CONSIDERATION OF THE LEGAL PROVISIONS IN ISSUE
HEREIN : -
67. In the present matter, the real controversy is as to what
would be the base figure on which the percentage of Royalty
would be calculated. Payments made towards DMF, NMET
Page 51 of 82
are only a percentage of Royalty. Under Section 9(3) read
with Entry 24 of the Second Schedule, Royalty on iron ore is
levied at 15 per cent of the average sale price on ad valorem
basis. Rule 42, which deals with average sale price, speaks of
sale value. Rule 38 and Rule 45 of the 2016 Rules and the
2017 Rules respectively, deal with the components that
would go to constitute sale value. Explanations have been
appended to Rule 38 and 45(8)(a) respectively, stating that
the amounts paid towards Royalty, DMF and NMET would not
be excluded from the sale value.
68. Rules 8, 9 and 13 of the Auction Rules, 2015, which have
been discussed hereinabove, explained how the bidder bids
the auction premium as percentage of the average sale
price.
69. As per Rules 8 & 9, the bidders submit a bid which is the
percentage of the value of the minerals despatched or also
known as reserve price. Definition of value of mineral
Page 52 of 82
despatched in Rule 8(2) says, value of mineral despatched =
mineral despatched x sale value.
70. So, both for payment of premium and for computation of
Royalty, DMF and NMET, average sale price is the base
figure and in average sale price, the “sale value” is an
important component. The real question is whether
providing that amounts paid towards Royalty, DMF and
NMET will not be excluded from the sale value makes the
provision ultra vires the Constitution or the Statute.
71. Being a levy, albeit contractual, backed by statutory
provisions, the Rules of interpretation applicable to fiscal
Statutes and the principles set out thereon will definitely
come into play. Granted legislative competence, the
legislature and the subordinate Rule making authority will
have full liberty to prescribe the manner of levy, the
determination of the rates and the method of computation of
the levy. The only requirement is that it should comport with
the constitutional provisions and the parent Statute and that
Page 53 of 82
the nexus between the measure of levy and the levy ought to
be reasonable and the measure must have some relationship
with the nature of the levy.
MEASURE OF LEVY AND NATURE OF LEVY : -
72. In Mineral Area Development Authority (supra) this
Court clearly reiterated the well-settled distinction between
the subject matter of a levy and the standard by which the
amount of levy is measured. This Court explained that the
measure of the levy is not the true test of the nature of the
levy. The following paragraphs in the said judgment make
for useful reading:-
“302. It now a well -settled principle that the
determination of the principles for assessing the
amount of tax is within the legislative domain [S. Kodar
v. State of Kerala, (1974) 4 SCC 422, para 10]. The
quantification or measurement of liability is done on
the basis of the procedures laid down by the competent
legislature [Shaktikumar M. Sancheti v. State of
Maharashtra, (1995) 1 SCC 351, para 3]. In situations
where the legislature selects one method out of the
many available for assessing tax, the courts should not
strike down the levy on the ground that the legislature
should have adopted another method unless the
method is capricious, fanciful, arbitrary or clearly
unjust [Khandige Sham Bhat v. CIT (Ag), 1962 SCC
OnLine SC 15, para 10]. Although the liability may be
Page 54 of 82
quantified or measured in many ways, there is a clear
distinction between the subject matter of a tax and the
standard by which the amount of tax is measured.
303. The pith and substance or true nature and
character of the legislation must be determined with
reference to the legislative subject matter and the
charging section [Federation of Hotel & Restaurant Assn.
of India v. Union of India, (1989) 3 SCC 634, para 37] The
charging section levying a tax and defining the persons
who are liable to pay the tax constitute the core of a
taxing statute B.Shama Rao v. State (UT of Pondicherry),
1967 SCC OnLine SC 29]. The distinction between the
nature of tax and measure of tax can be gathered from
the decision of this Court in Sainik Motors, Jodhpur v.
State of Rajasthan, [1961 SCC OnLine SC 15]. In that
case, the petitioners challenged the levy of taxes on
passengers and goods by the State legislature. The
charging section provided that the tax was “in respect
of all passengers carried and goods transported by
motor vehicles at such rate not exceeding one-eight of
the value of the fare or freight.” This Court held that the
tax was on passengers and goods which could be traced
to Entry 56 of List II of the Seventh Schedule. As regards
the measure of the levy, it was held that the measure
was furnished by the amount of the fare and freight
charged.
304. It is a settled position that the measure of tax is not
a true test of the nature of tax [R.R. Engg. Co. v. Zila
Parishad, Bareilly, (1980) 3 SCC 330, para 16] The
standard adopted as a measure of tax may be a relevant
consideration in determining the nature of tax, but is
not conclusive….
308. The discussion above indicates that the nexus
between the measure and levy of tax need not be
“direct and immediate”. The nexus has to be
“reasonable” and must have some relationship with
the nature of levy. The reasonability of the nexus will
largely depend upon the nature of the tax and the
means available with the legislature to design the
measure of the tax. Since the measure of the levy is a
Page 55 of 82
matter of legislative policy and convenience, [Express
Hotels (P) Ltd. v. State of Gujarat, (1989) 3 SCC 677, para
25 the reasonability of the nexus between the measure
and tax has to be determined by the courts on a case-to-
case basis. While doing so, the Court will bear in mind
the fundamental principle that the legislature
possesses a broad discretion in matters of fiscal
levies.”
73. In the leading judgment of the Federal Court in Ralla
Ram vs. Province of East Punjab,
5 the Federal Court had to
grapple with the issue whether the prescription of annual
value of the property as the basis for the levy of property tax
would make the levy, a tax on income. Explaining how such a
prescription though used in the Income Tax Act for getting at
the income, that alone was not enough to bar the use of the
same for assessing provincial tax, this Court held as under: -
“Our own conclusion may be summed up very briefly. In
the first place, we have to look into the charging section of
the statute, because as was pointed out in Provincial
Treasurer of Alberta v. G.E. Kerr [[1933] A.C. 710.] , “the
identification of the subject-matter of the tax is only to be
found in that section”. The charging section in the present
case is s. 3, which in clear terms levies not a tax on income
but a tax on buildings and lands. It is true that we must
look not to the mere form but to the substance of the
levy, and the tax must be held to be invalid, if in the
guise of a property tax it is really a tax on income.
There is however nothing in the impugned Act to show
5
1948 SCC Online FC 9
Page 56 of 82
that there was any intention on the part of the
Legislature to get at or tax the income of the owner
from the building. It is true that the annual value was
used as the basis, but it was very different from the
annual value which may be used for getting at the true
profits or income. The annual value, as has been
pointed out, is at best only notional or hypothetical
income and not the actual income. It is only a standard
used in the Income-tax Act for getting at income, but
that is not enough to bar the use of the same standard
for assessing a Provincial tax. If a tax is to be levied on
property, it will not be irrational to correlate it to the
value of the property and to make some kind of annual
value the basis of the tax without intending to tax
income.”
This Paragraph clearly highlights the nature and measure of
the tax and how the two should not be mixed up.
74. In Union of India & Ors. vs. Bombay Tyre International
Ltd. and Others,
6
explaining how Section 3 of the then
prevailing Central Excise and Salt Act provided for the levy
of duty of excise on goods produced or manufactured in
India and how Section 4 prescribed the measure by which
the charge is to be levied, this Court followed Ralla Rama
(supra) and explained how while the measure of levy may
indicate the nature of tax but it does not necessarily
6
(1984) 1 SCC 467
Page 57 of 82
determine it. This Court further referred to the Constitution
Bench judgment in M/s R.R. Engineering Co. vs. Zila
Parishad, Bareilly and Another,
7 which explained the
relationship between the measure of levy and the nature of
levy. This Court referred to the following paragraph from
R.R. Engineering Co. (supra).
“It may be, and is often so, that the tax on circumstances
and property is levied on the basis of income which the
assessee receives from his profession, trade, calling or
property. That is, however, not conclusive on the
nature of the tax. It is only as a matter of convenience
that income is adopted as a yardstick or measure for
assessing the tax. As pointed out in Re a Reference
under Government of Ireland Act [1936 AC 352] , the
measure of the tax is not a true test of the nature of the
tax. Therefore, while determining the nature of a tax,
though the standard on which the tax is levied may be a
relevant consideration, it is not a conclusive
consideration....”
75. Further, in para 14 of Bombay Tyre International
Ltd. (supra), this Court held : -
“14. ……It is apparent, therefore, that when enacting a
measure to serve as a standard for assessing the levy the
Legislature need not contour it along lines which spell out
the character of the levy itself. Viewed from this
standpoint, it is not possible to accept the contention that
because the levy of excise is a levy on goods
7
(1980) 3 SCC 330
Page 58 of 82
manufactured or produced the value of an excisable
article must be limited to the manufacturing cost plus the
manufacturing profit. We are of opinion that a broader
based standard of reference may be adopted for the
purpose of determining the measure of the levy. Any
standard which maintains a nexus with the essential
character of the levy can be regarded as a valid basis
for assessing the measure of the levy. In our opinion,
the original Section 4 and the new Section 4 of the Central
Excises and Salt Act satisfy this test.”
It will be clear from the above paragraph that for
determining the measure of levy, sometimes a broad-based
standard can be adopted.
76. Further, in Bombay Tyre International Ltd. (supra), this
Court followed the earlier judgment in Hingir-Rampur Coal
Co., Ltd. and Others vs. State of Orissa and Others,
8
.
Hingir-Rampur (supra) held that the mere fact that the levy
imposed by the impugned Act therein has adopted the
method of determining the rate of levy by reference to
minerals produced by the mines would not by itself make the
levy a duty of excise.
77. The above precedents have been set out only to explain
the distinction between the measure of levy and the nature of
8
[1961] 2 SCR 537
Page 59 of 82
levy. Though there is no dispute with regard to the
legislative competence and the entire argument has only
been on the provisions being violative of Articles 14 and
19(1)(g), this conceptual distinction is essential while
considering the argument that the sale value could not have
been so defined as to encompass within it the payments
made towards Royalty, DMF and NMET. The argument on
Articles 14 and 19(1)(g) and the aspect of manifest
arbitrariness have been independently considered
hereinbelow.
78. It must be remembered that as held in Mineral Area
Development Authority (supra), the measure of any levy is a
matter of legislative policy. Convenience and the
reasonability of the nexus between the measure and tax, no
doubt, has to be determined on a case-to-case basis.
Mineral Area Development Authority (supra) also reiterated
that it was a fundamental principle that legislature possessed
a broad discretion in matters of fiscal levy.
Page 60 of 82
MEASURE OF LEVY – AS AN ANTIDOTE TO CHECK
EVASION : -
79. Yet another principle that will have a bearing is that
granted legislative competence, the legislature and the
subordinate Rule making authority is also authorized to enact
measures to prevent evasion of tax. In Sardar Baldev Singh
(supra), Section 23A of the Income Tax Act, 1923, came up
for consideration. The said Section required that on an order
being made under it, the undistributed portion of the
assessable income of the company after deductions provided
in the Section was to be deemed to have been distributed as
dividend among the shareholders as at the date of the
General Meeting. Considering the constitutionality of the
said Section, this Court held that under Entry 54 of List I of the
Seventh Schedule to the Government of India Act, 1935, a law
could be passed to prevent a person from evading tax
payable on his own income. The following paragraphs of the
said judgment repays study: -
“20. In spite of all this it seems to us that the
legislation was not incompetent. Under Entry 54 a law
Page 61 of 82
could of course be passed imposing a tax on a person
on his own income. It is not disputed that under that
entry a law could also be passed to prevent a person
from evading the tax payable on his own income. As
is well-known the legislative entries have to be read
in a very wide manner and so as to include all
subsidiary and ancillary matters. So Entry 54 should
be read not only as authorizing the imposition of a tax
but also as authorizing an enactment which prevents
the tax imposed being evaded. If it were not to be so
read, then the admitted power to tax a person on his
own income might often be made infructuous by
ingenious contrivances. Experience has shown that
attempts to evade the tax are often made.
21. Now it seems to us that Section 23-A was enacted
for preventing such evasion of tax. The conditions of
its applicability clearly lead to that conclusion. The
first condition is that the company must have
distributed as dividend less than sixty per cent of its
assessable income after deduction of income tax and
super tax payable by it. The taxing authority must
then be satisfied that the payment of a dividend or of
a larger dividend than that declared, would, in view
of losses incurred in earlier years or the smallness of
the profit made, be unreasonable. Lastly, the section
does not apply to a company in which the public are
substantially interested or a subsidiary company of a
public company whose shares are held by the parent
company or by the nominees thereof…..
… …
When therefore in spite of there being money
reasonably available for the purpose, it
decides not to declare a dividend it is clear that
it does so because it does not want to take the
dividend. Now it may not want to take the
dividend if it wants to evade payment of tax
thereon. Thus by not declaring the dividend the
persons constituting the group in control, could
evade payment of super tax, which, of course,
is a form of income Tax. They would be able to
Page 62 of 82
evade the super tax because super tax is
payable on the dividend in the hands of the
shareholders even though it may have been
paid by the company on the profits out of which
the dividend is paid, and because the rate at
which super tax is payable by a company may
be lower than the rate at which that tax is
payable by other assessees. By providing that
in the circumstances mentioned in it, the
available assessable income of a company
would be deemed to have been distributed as
dividend and be taxable in the hands of the
shareholders as income received by them, the
section would prevent the members of such a
group from evading by the exercise of their
controlling power over the company, payment
of tax on income that would have come to
them. That being so, the section would be
within Entry 54.
In conceivable circumstances the section may
work hardship on members of the public who
hold shares in such a company but that would
not take the section outside the competence of
the legislature. It would still be an enactment
preventing evasion of tax. Considerations of
hardship are irrelevant for deciding questions
of legislative competence.
22. It is further quite clear that in the absence of a
provision like Section 23-A it is possible so to
manipulate the affairs of a company of this kind as to
prevent the undistributed profits from ever being
taxed and experience seems to have shown that this
has often happened. The following passage from
Simon's Income Tax, 2nd Edn., Vol. 3, p. 341, fully
illustrates the situation:
“Generally speaking, surtax is charged only on
individuals, not on companies or other bodies
corporate. Various devices have been adopted
from time to time to enable the individual to avoid
surtax on his real total income or on a portion of it,
Page 63 of 82
and one method involved the formation of what is
popularly called a ‘one-man company’. The
individual transferred his assets, in exchange
for shares, to a limited company, specially
registered for the purpose, which thereafter
received the income from the assets concerned.
The individual's total income for tax purposes
was then limited to the amount of the dividends
distributed to him as practically the only
shareholder, which distribution was in his own
control. The balance of the income, which was
not so distributed, remained with the company
to form, in effect, a fund of savings accumulated
from income which had not immediately
attracted surtax. Should the individual wish to
avail himself of the use of any part of these
savings he could effect this by borrowing from
the company, any interest payable by him going
to swell the savings fund; and at any time the
individual could acquire the whole balance of
the fund in the character of capital by putting
the company into liquidation.”
The section prevents the evasion of tax by,
among others, the means mentioned by Simon.
80. What is significant to note is that undistributed dividend
was deemed to be income proportionate in the hands of the
shareholders. This was to prevent devices being employed
by companies to not distribute dividends and thereby
prevent income accruing in the hands of shareholders. A
measure in the nature of a legal fiction passed muster under
the Constitution. This Court also noticed that in Sardar
Page 64 of 82
Baldev Singh (supra), the Section may work hardship on
members who hold shares but that would not make the levy
unconstitutional.
81. Similarly, in Balaji vs. ITO,
9 this Court upheld the
provision which provided that, in computing the total income
of any individual there shall be included so much of the
income of a minor child of such individual and as arises
directly or indirectly from the membership of the wife in a
firm of which her husband is a partner and further, from the
admission of the minor to the benefits of the partnership in a
firm of which individual is a partner.
82. This implied that the individual who was the husband or
the father was taxed for the income of the wife or of the minor
child respectively in the partnership. Upholding the
provision, this Court held that this was a measure to prevent
evasion of tax and even though it may be little hard on a
9
1961 (43) ITR 393
Page 65 of 82
husband or a father in the case of genuine partnership, it was
intended in larger interest to prevent evasion of income tax :-
“5. It is well settled that the entries in the Lists are not
powers but are only fields of legislation, and that widest
import and significance must be given to the language
used by Parliament in the various entries. Sarkar, J.,
speaking for this Court, observed in Sardar Baldev Singh
case [(1960) 40 ITR 605] thus at p. 615:
“So Entry 54 should be read not only as
authorising the imposition of a tax but also as
authorising an enactment which prevents the tax
imposed being evaded. If it were not to be so
read, then the admitted power to tax a person on
his own income might often be made infructuous
by ingenious contrivances.”
This decision holds that the said entry can sustain a law
made to prevent the evasion of tax.
So judged, can it be said that the restrictions imposed,
under the impugned provisions are not reasonable? The
object sought to be achieved was to prevent the
prevalent abuse, namely, evasion of tax by an individual
doing business under a partnership nominally entered
with his wife or minor children. The scope of the
provisions is limited only to a few of the intimate
members of a family who ordinarily are under the
protection of the assessee and are dependants of him.
The persons selected by the provisions, namely, wife
and minor children, cannot also be ordinarily expected
to carry on their business independently with their own
funds, when the husband or the father is alive and when
they are under his protection. Doubtless some of the
said partnerships may be genuine and the wife or
minor children may have contributed capital to the
business; but the provisions do not in any way affect
their rights and even the liability inter se between the
husband and the wife or the minor children, as the case
may be, in respect of the tax paid. It is true that in
Page 66 of 82
computing the total income of an individual for the
purpose of assessment, their income in their capacity as
partners shall be included in the income of the
individual; but the section does not prevent the husband
or the father, as the case may be, from debiting against
them in the partnership accounts that part of the tax
referable to the share or shares of their income. It may
be that a father or a husband may have to pay tax at a
higher rate than ordinarily he would have to pay if the
addition of the wife's or children's income to his own
brings his total income to a higher slab. But it may not
necessarily be so in a case where the income of the
former is not appreciable; even if it is appreciable, he
can debit a part of the excess payment to his wife and
children. In short, the firm, though registered, would be
treated as a distinct unit of assessment, with the
difference that, unlike in the case of a registered firm,
the entire income of the unit is added to the personal
income of the father or the husband, as the case may be.
This mode of taxation may be a little hard on a husband or
a father in the case of genuine partnership with wife or
minor children, but that is offset, to a large extent, by the
beneficient results that flow therefrom to the public,
namely, the prevention of evasion of income tax, and also
by the fact that, by and large, the additional payment of tax
made on the income of the wife or the minor children will
ultimately be borne by them in the final accounting
between them. In these circumstances, we cannot say that
the provisions of Section 16(3) of the Act impose an
unreasonable restriction on the fundamental rights of the
petitioner under Article 19(1)(f) and (g) of the
Constitution.”
83. It is apt to recall that in Navnit Lal C. Javeri vs. K.K.
Sen, Appellate Assistant Commissioner of Income Tax,
Bombay,
10 while considering the validity of a provision of
10
[1965] 1 SCR 909
Page 67 of 82
the Income Tax Act deeming the loan received by a
shareholder as a dividend, this Court upheld the validity of
the provision to set at naught any subterfuge that companies
may adopt by dressing up dividends as loans to circumvent
tax in the hands of the recipient. All that this Court expected
was some rational connection between the items taxed and
the concept of income construed liberally. The following
passage from Navnit Lal C. Javeri (supra) is very relevant: -
“16. The question which now arises is, if the
impugned section treats the loan received by a
shareholder as a dividend paid to him by the
company, has the legislature in enacting the section
exceeded the limits of the legislative field prescribed
by the present Entry 82 in List I? As we have already
noticed, the word “income” in the context must
receive a wide interpretation; how wide it should be it
is unnecessary to consider, because such an enquiry
would be hypothetical. The question must be decided
on the facts of each case. There must no doubt be
some rational connection between the item taxed and
the concept of income liberally construed. If the
legislature realises that the private controlled
companies generally adopt the device of making
advances or giving loans to their shareholders with
the object of evading the payment of tax, it can step
in to meet this mischief, and in that connection, it has
created a fiction by which the amount ostensibly and
nominally advanced to a shareholder as a loan is
treated in reality for tax purposes as the payment of
dividend to him. We have already explained how a
small number of shareholders controlling a private
Page 68 of 82
company adopt this device. Having regard to the fact
that the legislature was aware of such devices, would it
not be competent to the legislature to devise a fiction for
treating the ostensible loan as the receipt of dividend? In
our opinion, it would be difficult to hold that in
making the fiction, the legislature has travelled
beyond the legislative field assigned to it by Entry 82
in List I.
17. It is, however, urged by Mr. Pathak that while
providing for such a fiction, the legislature should have
required the Income Tax Officer to consider in each case
whether the loan was genuine, or was the result of a
device; and he argues that since no such provision has
been made and a uniform presumption by fiction is
sought to be raised, the legislature has gone beyond its
legislative competence. In support of this argument, Mr.
Pathak has referred to the fact that under Section 108(1)
of the Commonwealth Income Tax Act it is provided that
the amount paid to the shareholder by way of advance or
loan can be taxed if in the opinion of the Commissioner it
represents distributions of income. Such a provision
would have made the impugned section valid. Mr .
Pathak argues that omission of Parliament to exclude
from the operation of Section 12(1-B) genuine loans or
advances, and its failure to distinguish between such
loans and advances and loans and advances made as
device shows, that it has acted blindly and must,
therefore, be held to have exceeded its legislative
power. We are not inclined to accept this argument. If
the legislature thinks that the advances or loans are
in almost every case the result of a device, it would
be competent to it to prescribe a fiction and hold that
in cases of such advances or loans, tax should be
recovered, from the shareholder on the basis that he
has received the dividend. Therefore, we are
satisfied that the High Court was right in coming to
the conclusion that the impugned section is not
beyond the legislative competence of the
legislature.”
Page 69 of 82
84. In Union of India and Another vs. A. Sanyasi Rao and
Others,
11 this Court upheld Section 44-AC read with Section
206-C of the Income Tax Act, 1961. The said Section provided
that for the assessees mentioned therein a sum equal to the
40 per cent of the amount paid or payable by the buyer as
the purchase price in respect of such goods shall be deemed
to be the profit and gain of the buyer and was to be taxed
under the head of profit and gain of business and profession.
The provision enabled the revenue to estimate the profits on
a presumptive basis. The defense of the Government was it
wanted to get over the problems in assessing income and
recovering tax in case of certain assessees dealing in country
liquor, timber and forest produce. Experience has revealed
that a large number of such persons did not maintain any
book of accounts. This Court, upholding the validity of
provision, held as under: -
“15…..The attack against the legislative competence
is without substance. The impugned levy of income
tax is not open to objection. The assumption that
11
(1996) 3 SCC 465
Page 70 of 82
Sections 44-AC and 206-C are charging provisions is
unsustainable. The legislation will fall within
Schedule VII, List 1 Entry 82. The relevant entry
therein (taxes on income other than agricultural income)
should be liberally construed. There were sufficient
materials before Parliament to hold that due to very
many causes, income from certain trades could not be
brought to tax and there was large scale evasion. The
sufficiency of the material in that regard is not open to
scrutiny by court. All that is envisaged in the impugned
statutory provisions is only an estimated (income tax)
“advance tax”; (ii) since it came to light that the income
from certain trades could not be properly brought to tax,
the legislature enacted the instant machinery provisions.
The provisions are reasonable and have sufficient nexus
to the objects that are sought to be achieved. The
statutory provisions were intended to operate in all
trades where the evasion and chances of evasion were
greater than others and due to practical experience over
the years, it was felt that the particular trades or
businesses necessitated speedier provision for recovery
or collection. It is in this perspective only, trades in
particular commodities, wherein evasion was
predominant and called for appropriate machinery to
secure the payment of tax, the legislation was enacted.
In the case of taxation laws, the legislature has got a
wide discretion to pick and choose persons, objects,
districts, etc. for legislating. The power of the
legislature to classify or select certain objects or
persons to which the law will apply is of great
magnitude. The court permits a greater latitude to
the discretion of the legislature. It has been
invariably held by this Court that in tax matters, the
State is allowed to pick and choose districts, objects,
persons, methods and even rates for taxation, if it
does so reasonably. The provisions attacked in this
case are reasonable, as could be seen from the
legislative history on the object and the objects
sought to be achieved.”
21. ...Considered in the light of the practical
difficulties envisaged by the Revenue to locate the
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persons and to collect the tax due in certain trades, if
the legislature in its wisdom thought that it will
facilitate the collection of the tax due from such
specified traders on a “presumptive basis”, there is
nothing in the said legislative measure to offend
Article 14 of the Constitution. In the light of the legal
principles stated above, we are unable to hold that
Section 44-AC read with Section 206-C is wholly hit by
Article 14 of the Constitution of India.”
APPLICATION OF THE LAW TO THE FACTS : -
85. It is time to apply the above principles to the case at
hand. As adverted to earlier, there is no dispute on the
legislative competence of the Parliament to enact the law and
the power to make subordinate legislation in the Central
Government. Under Section 9(2) of the MMDR Act read with
Entry 24 of the Second Schedule, royalty is levied at 15% of
‘Average Sale Price’ on ad valorem basis. Sale value is a
component of ASP under Rule 42 of the 2016 Rules. When it is
prescribed in the Explanations to Rule 38 of the 2016 Rules
and Rule 45(8)(a) of the 2017 Rules, that while computing the
sale value, no deduction from the gross amount shall be
made in respect of Royalty, payments to the DMF and NMET,
all that occurs is that a measure is provided to compute sale
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value based on which average sale price will be arrived at.
Under Rule 42, the ex-mine price is used to compute the
average sale price of mineral grade/concentrate and under
Rule 42(2)(b), ex-mine price of mineral grade/concentrate
where domestic sale has occurred, is the 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. Under Rule 42(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, computed in accordance with Rule 42, the
weight being the quantity despatched from the mining lease
area of mineral grade/concentrate, relevant to each ex-mine
price. As to what is sale value, as mentioned in Rule 42(b)
would be discernible from Rule 38, which has already been
discussed.
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86. It is further to be examined whether the measure has
any nexus and rational connection with the nature of levy.
Further, the justification offered by the Union of India for
adopting such a measure also needs to be examined.
87. The justification offered by the Union of India is that
unlike for coal, where the notified prices, auction prices of
Coal India Limited and Singareni Collieries Company
Limited or the import price form the basis of National Coal
Index (NCI), there is no such mechanism for iron ore.
88. As far as the iron ore is concerned, the ASP is depended
on market forces and is not decided by the Government.
89. The ASP is arrived at based on the data given by the
miners themselves. Detailed instances of manipulation of ASP
with regard to different grades of iron ore have been
provided in the form of an appendix to the additional
affidavit. For the period from August, 2022 to January, 2023,
the Union of India has contended that since the successful
bidders have quoted their bid price as a percentage of the
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ASP as far as premium for mining lease was concerned, in
several quarters, all out efforts have been made to depress
the ASP to keep the premium down. Further, depressing the
ASP will also help in reducing the royalty and payments
made towards DMF and NMET as royalty has a percentage of
the average sale price and the other levies are a percentage
of royalty.
90. The Union of India has demonstrated before us by
producing graphs, charts and data that wherever highest ex-
mine price was reported, the quantity despatched was NIL or
very less. They also demonstrated that where the ex-mine
price was low, the quantity despatched was high. It is
contended that under the method of calculation of average
sale price, weighted average of ex-mine price is relevant,
and, in that context, despatched quantity is taken as the
weight. They contend that by this jugglery, enormous loss is
caused in royalty payments and in premium payments by
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beating down the average sale price. The graphs, charts and
data have all been set out in the earlier part of this judgment.
91. It is the contention that the measure of levy and the
decision not to exclude royalty and payments made towards
DMF and NMET was taken as a regulatory measure to
suppress the mischief, to prevent evasion to the extent
possible and to advance the remedy, to arrive at a fair value
of the mineral.
92. In this scenario, it cannot be said that the measure
adopted is arbitrary and has no nexus and rational
connection with the nature of the levy. The judgments of this
Court in Balaji (supra), Sardar Baldev Singh (supra), Navnit
Lal C. Javeri (supra) and A. Sanyasi Rao (supra), which have
been elaborately discussed hereinabove, fully justify the
measure adopted in the Explanations to Rule 38 of the 2016
Rules and Rule 45(8)(a) of the 2017 Rules for computation of
sale value which, in turn, is an essential factor in computation
of the ASP.
Page 76 of 82
93. In fact, in A. Sanyasi Rao (supra), while upholding the
presumptive tax based on the purchase price, this Court
made the following telling observations: -
“17. …..Having regard to the past difficulties in making a
normal assessment and collection in the case of certain
categories of assessees, for convenience sake, the
legislature has chosen to make appropriate provision for
collection of tax at an anterior stage by adopting the
purchase price as the measure of tax. In our view, this is
permissible and the standard by which the amount of
tax is measured, being the purchase price, will not in
any way alter the nature and basis of levy viz. that the
tax imposed is a tax on income. It cannot be labelled
as a tax on purchase of goods.”
94. We find nothing manifestly arbitrary in the process
adopted. There is nothing capricious or irrational about the
measure and it cannot be said that it has been adopted
without any determining principle nor do we find the
measure excessive or disproportionate for it to be
characterized as manifestly arbitrary.
95. We also do not find any violation of Article 14 of the
Constitution from the angle of discrimination. The
comparison with coal is completely unjustified as there is no
concept of ASP in coal and that too based on data given by
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the miners. Hence, comparing coal and iron ore, in this
context, is akin to comparing apples and oranges which we
are not prepared to do. According to the petitioners, ad
valorem cannot include in the value the levy of royalty,
payments made towards DMF and NMET. We are not able to
countenance that submission. As a means to check evasion, a
measure has been prescribed under which ad valorem will
be arrived at to check manipulation and to strike at evasion,
certain factors have been loaded on to the sale value and we
find nothing illegal in the same.
96. Perusal of the factual situation in Balaji (supra), Sardar
Baldev Singh (supra), Navnit Lal C. Javeri (supra) and A.
Sanyasi Rao (supra) clearly establish that certain legitimate
measures needed to check evasion can always be adopted
as the measure of levy. The argument on violation of Article
19(1)(g) also has no merit. In a classic passage of what
broadly a reasonable restriction could encompass is
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available in the case of State of Madras vs. V.G. Row.
12,
wherein Patanjali Sastri, C.J., speaking for the Court, stated
as under: -
“….The nature of the right alleged to have been
infringed, the underlying purpose of the restrictions
imposed, the extent and urgency of the evil sought to be
remedied thereby, the disproportion of the imposition,
the prevailing conditions at the time, should all enter into
the judicial verdict. In evaluating such elusive factors
and forming their own conception of what is reasonable,
in all the circumstances of a given case, it is inevitable
that the social philosophy and the scale of values of the
Judges participating in the decision should play an
important part, and the limit to their interference with
legislative judgment in such cases can only be dictated
by their sense of responsibility and self-restraint and the
sobering reflection that the Constitution is meant not
only for people of their way of thinking but for all, and
that the majority of the elected representatives of the
people have, in authorising the imposition of the
restrictions, considered them to be reasonable….”
97. The 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. With the aid of graphs
and charts, we have been shown some instances of clever
stratagems being deployed to beat down the ASP. These are
12
[1952] SCR 597
Page 79 of 82
much more than mere canaries in the mine, literally and
figuratively. It may be possible that all parties may not resort
to such ingenious contrivances. However, as held in the
precedents set out hereinabove, 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. A
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. For the reasons stated above, we
do not consider the measure to be unreasonable or
disproportionate.
98. Much was made out of the recommendation s of Shri
Praveen Kumar and Dr. Aruna Sharma Committee Reports.
Committee Reports are only recommendatory in nature. If it
were not, judicial review will be a meaningless exercise. In
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the challenge to the Constitutionality of the Rules as to
demonstrate how the levy is illegal, the petitioners have not
been able to establish unconstitutionality. On the contrary,
the Union has offered proper justification for the measure of
levy adopted and it passes constitutional muster.
99. The scope of the judgment of this Court dated
07.11.2024 in Writ Petition No. 715 of 2024 is clear in black
and white. There was no pronouncement made on the
constitutionality of the levy. The subsequent order dated
19.05.2025 left every liberty for the petitioners to challenge
the decision of the government.
100. We have thoroughly and in a threadbare manner
examined the contentions assailing the constitutional validity
of the Explanations appended to Rule 38 of the 2016 Rules
and Rule 45(8)(a) of the 2017 Rules and we do not find any
infirmity in the impugned provisions. Hence, the judgement
dated 07.11.2024 of this Court in Writ Petition No. 715 of 2024
cannot come to the aid of the petitioners.
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101. The further argument that the levy breaches the three
years’ cap under the proviso to Section 9(3) is also fallacious.
Here, there is no revision of the rate of royalty. The injunction
for three years is on the revision only for the rate of royalty.
102. The judgments cited by the petitioners have no
relevance on the controversy in question and do not advance
the case of the petitioners any further.
CONCLUSION : -
103. For the reasons stated above, we hold that the
Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of
the 2017 Rules, insofar as they provide for inclusion of
royalty and payments made towards DMF and NMET in the
sale value for computing the average sale price for
determination of royalty, is constitutional and valid. We hold
that the impugned Rules are not violative of Article 14 and
Article 19(1)(g) of the Constitution. We further hold that the
impugned provisions are not ultra vires Section 9 of the
MMDR Act.
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104. The writ petition is dismissed. No order as to costs.
……….........................J.
[J.B. PARDIWALA]
……….........................J.
[K. V. VISWANATHAN]
New Delhi;
July 13, 2026
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