The Supreme Court has ordered the government to make a final decision on the effects of “royalty on royalty” when calculating the average sale price of minerals.
The Supreme Court has instructed the government to make a final decision about the effects of “royalty on royalty” when calculating the average sale price of minerals. The Court listened to arguments from Kirloskar Ferrous Industries Limited (KFIL) and its shareholder, who challenged the government’s method for calculating royalties on mined minerals. KFIL disputed certain aspects of the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 (MCR), and the Mineral Conservation and Development Rules, 2017 (MCDR), claiming these lead to an unfair “cascading effect” in royalty calculations, effectively imposing “royalty on royalty.”
The Bench, which included Chief Justice D.Y. Chandrachud, Justice J.B. Pardiwala, and Justice Manoj Misra, stated, “It is possible that at some point, royalties for certain minerals were calculated without including previously paid royalties, DMF, and NEMT contributions. However, this does not limit the Central Government’s authority to change how royalties are calculated. Just because the method for calculating royalties has changed from the previous MCR, 1960, does not make the new approach unreasonable or arbitrary.”
The petition, filed under Article 32 of the Constitution, questioned the validity of these explanations, arguing that they lead to royalties being calculated in a way that includes previously paid amounts. The petitioners claimed that the calculation methods create a situation where royalties are charged on top of other royalties, leading to a compounding effect each month. They pointed out that the explanations attached to Rule 38 of MCR and Rule 45 of MCDR state that no deductions will be made from the total amount for royalty, DMF, and NMET payments.They claimed that this led to previously paid royalties being included in the next month’s royalty calculations. The petitioners argued that although coal mining was excluded from this compounding due to a Notification amendment, there was no clear distinction between coal and other minerals like iron ore. Therefore, they believed this exclusion went against Article 14 of the Constitution.
The Supreme Court noted that when reviewing the validity of laws related to economic activities, courts should proceed with caution. The Bench stated that a greater level of respect should be given in these cases, allowing the legislature and executive enough flexibility to handle economic issues. They emphasized that complex economic and fiscal matters cannot be addressed with a rigid formula or a one-sided approach. The Court has consistently acknowledged the need for a hands-off judicial approach regarding economic legislation, granting the legislature broad freedom to experiment with economic laws as part of the Government’s economic policy.
The Court noted that the MMDR Act and its rules deal with the extraction, disposal, and sale of natural resources, which involves complex economic decisions that impact the overall economy. Therefore, it stated that “the legislature should have more flexibility in determining how to calculate royalty.” The Court added that the exclusion of royalty and contributions to DMF and NMET for coal, but not for other minerals, is not unreasonable just because the calculations differ in some ways. The legislature should be respected in how it decides to compute royalty for various mineral grades. As a result, the Court ordered that the respondents have two months from the judgment date to finish the public consultation process for amending the MMDR Act, which started with the Notice dated 25.05.2022, and to make a final decision regarding the impact of royalty on the calculation of the ‘average sale price’ according to the relevant rules.
Cause Title: Kirloskar Ferrous Industries Limited & Anr. v. Union Of India & Ors. (Neutral Citation: 2024 INSC 848)
