Summary
The Supreme Court upheld the Explanations to Rule 38 of the Minerals Concession Rules, 2016 and Rule 45(8)(a) of the Mineral Conservation and Development Rules, 2017, which bar deducting royalty, DMF and NMET payments when computing the sale value used for the average sale price of iron ore. It held that the Explanations prescribe only the measure of the levy, are a legitimate measure against evidenced manipulation of the average sale price, and do not breach Articles 14 or 19(1)(g) or Section 9 of the MMDR Act.
Issues
- Whether the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules, so far as they include royalty, DMF and NMET payments in sale value, are ultra vires Section 9 of the MMDR Act read with Entry 24 of the Second Schedule (royalty at 15% of average sale price ad valorem).
- Whether the Explanations are manifestly arbitrary or discriminatory under Article 14, including in comparison with the treatment of coal, or an unreasonable restriction under Article 19(1)(g).
- Whether the writ petition was maintainable, and whether the petitioners were estopped by having taken part in the auction.
- Whether the method breaches the proviso to Section 9(3) of the MMDR Act, which bars enhancing the royalty rate more than once in three years.
Provisions considered
- Section 9 read with Entry 24 of the Second Schedule, Mines and Minerals (Development and Regulation) Act, 1957Royalty on iron ore is 15% of average sale price on an ad valorem basis. The Court held that the rule-making authority may prescribe how sale value, and so the average sale price, is computed. Loading royalty, DMF and NMET into sale value to check evasion is a valid measure of the levy and not ultra vires Section 9. (¶¶ 13, 14, 67, 85, 95, 103)
- Section 9(3), proviso, Mines and Minerals (Development and Regulation) Act, 1957The bar on enhancing the royalty rate more than once in three years applies only to revising the rate. The impugned method of computing sale value does not revise the rate. (¶¶ 13, 35, 101)
- Rule 38, Explanation, Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016The Explanation provides that no deduction is made from the gross invoice amount for royalty, DMF and NMET payments when computing sale value. It was upheld as constitutional and within the parent Act. (¶¶ 12, 67, 85, 92, 103)
- Rules 42 and 43, Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016Under Rule 42 the average sale price is the monthly weighted average of ex-mine prices derived from sale value, weighted by quantity despatched, and Rule 43 requires the Indian Bureau of Mines to publish it. The Court relied on the Union's data showing that miners manipulated the price by shifting reported despatches between high- and low-price mines. (¶¶ 15, 28, 85, 89, 90)
- Rule 45(8)(a), Explanation, Mineral Conservation and Development Rules, 2017This Explanation is in terms identical to the one in Rule 38 and was upheld on the same reasoning. (¶¶ 12, 85, 103)
- Rules 8, 9 and 13, Mineral (Auction) Rules, 2015Auction premium is bid as a percentage of the value of mineral despatched, which is computed on the published price. The average sale price is therefore the base for both premium and royalty, which gives lessees an incentive to depress it. (¶¶ 21, 68, 69, 70, 89)
- Articles 14 and 19(1)(g), Constitution of IndiaThe measure was held not to be manifestly arbitrary, capricious or disproportionate. Comparison with coal, which has no average-sale-price mechanism based on miners' data, was rejected. As an anti-evasion measure the restriction is reasonable, and individual hardship does not decide its validity. (¶¶ 94, 95, 96, 97, 103)
Held
- The objection that there was no violation of fundamental rights goes to the merits, not maintainability, and this Court's order of 19.05.2025 expressly gave the petitioners liberty to bring the challenge. Taking part in the auction does not estop the petitioners from challenging Rules that will continue to operate in future. (¶¶ 57, 58, 59)
- Subordinate legislation is presumed constitutional and the challenger must rebut that presumption. Legislative entries are construed liberally to include ancillary matters such as preventing evasion. Royalty is not a tax, but because it is a contractual levy backed by statute, the principles for interpreting fiscal statutes apply. (¶¶ 61, 62, 63, 66, 71)
- The measure of a levy is distinct from its nature and is a matter of legislative policy. The rule-making authority may choose the method of computation, provided the measure has a reasonable nexus with the nature of the levy and is not capricious or arbitrary. (¶¶ 71, 72, 75, 77, 78)
- A legislature or rule-making authority may adopt a measure of levy designed to prevent evasion, even through fictions or presumptive bases, and the hardship it causes to individuals does not make it invalid. The Court relied on Sardar Baldev Singh, Balaji, Navnit Lal C. Javeri and A. Sanyasi Rao. (¶¶ 79, 80, 82, 83, 84, 96, 97)
- Including royalty, DMF and NMET in sale value only provides the measure for computing the average sale price. Given the Union's data showing manipulation of the price through despatch patterns, the measure has a rational connection with the levy, is a legitimate anti-evasion device, and is not manifestly arbitrary. (¶¶ 85, 89, 90, 91, 92, 94)
- There is no discrimination under Article 14 because coal has no average-sale-price mechanism based on miners' own data, and comparing the two is like comparing apples and oranges. An 'ad valorem' base may include such payments when that is prescribed to check manipulation. (¶ 95)
- The restriction under Article 19(1)(g) is reasonable and proportionate, since it aims to offset revenue lost through price manipulation in the public interest. (¶¶ 96, 97)
- Expert committee reports recommending removal of the so-called cascading effect are only recommendatory. The earlier judgment of 07.11.2024 made no pronouncement on constitutionality and does not help the petitioners. (¶¶ 98, 99, 100)
- The three-year limit in the proviso to Section 9(3) applies only to revising the royalty rate and is not breached, because the rate has not been revised. (¶ 101)
Result
Writ petition dismissed; the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules held constitutional and intra vires Section 9 of the MMDR Act; no order as to costs.