Summary
In a writ petition challenging the Explanations that bar deducting royalty and DMF/NMET contributions from 'sale value' when computing the average sale price of minerals (said to cause royalty on royalty), the Supreme Court declined to strike them down as royalty computation is economic policy and the Explanations are clarificatory. Noting that the Union itself had acknowledged the anomaly, and that coal alone had been relieved of it, the Court directed the Union to conclude its pending public consultation and decide the issue within two months.
Issues
- Whether the Explanation to Rule 38 of the Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016 and the Explanation in Rule 45 of the Mineral Conservation and Development Rules, 2017, which include royalty, DMF and NMET payments in 'sale value' for computing average sale price, are manifestly arbitrary and violate Article 14.
- Whether excluding previously paid royalty and DMF/NMET contributions in computing royalty for coal, but not for other minerals such as iron ore, is unreasonable and discriminatory.
- Whether the Explanations go beyond the main provisions they explain.
Provisions considered
- Section 9 (including sub-section (3) and its proviso), Mines and Minerals (Development and Regulation) Act, 1957Quoted as the source of the obligation to pay royalty at Second Schedule rates and of the Centre's power to revise rates not more than once in three years; the petitioners' argument that monthly compounding effectively changes the rate in breach of the proviso was not accepted as a ground to strike down the Explanations. (¶¶ 3, 26, 33, 61)
- Rule 38 and its Explanation, Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016Rule 38 defines sale value as the gross invoice amount on an arm's length sale excluding taxes; the Explanation bars any deduction for royalty, DMF and NMET payments. The Court held the Explanation clarificatory and within the main rule, and policy not shown to exceed power or breach any statute. (¶¶ 10, 13, 61, 65, 66)
- Rules 39(3) and 42, Mineral (Other than Atomic and Hydrocarbons Energy Minerals) Concession Rules, 2016Read with Rule 38 to explain the mechanism: royalty is an ad valorem percentage of the IBM-published average sale price, which is the weighted average of ex-mine prices derived from sale value less specified expenditure, so the royalty paid is carried into the base. (¶¶ 11, 12, 13)
- Rule 45(8) and the Explanation on sale value, Mineral Conservation and Development Rules, 2017Treated alongside Rule 38 as providing for computation of ex-mine price from sale value without deducting royalty, DMF and NMET; upheld on the same reasoning as clarificatory and within policy domain, subject to the direction to decide the pending reform. (¶¶ 14, 61, 66, 84)
- Article 14, Constitution of IndiaApplied with the heightened deference due to economic legislation: a different royalty computation for coal does not by itself make the scheme for other minerals arbitrary, though the Court noted a prima facie anomaly given that the rules are general and the Union has acknowledged it. (¶¶ 67, 69, 70, 71, 74, 75, 76)
Held
- Computation and levy of royalty on different minerals is a matter of economic policy; courts confine themselves to legality, namely whether the authority exceeded its powers, erred in law, breached natural justice, acted unreasonably in the Wednesbury sense or abused power, and do not ask whether a wiser policy could be devised. (¶¶ 46, 47, 48, 49, 51, 53, 56, 57)
- A change in the method of computing royalty from that under the Mineral Concession Rules, 1960 does not by itself make the new method arbitrary; although the present mechanism may be onerous because of its compounding effect, it cannot be struck down absent anything showing it exceeds the authority's power or breaches a statute. (¶¶ 50, 61)
- An Explanation only clarifies the main provision and neither enlarges nor restricts it; the Explanations barring deduction of royalty, DMF and NMET payments in computing sale value are clarificatory and do not exceed the main rules or the statutory scheme. (¶¶ 63, 64, 65, 66)
- Economic legislation is allowed greater play in the joints; treating coal differently from other minerals in computing royalty is not arbitrary merely because the methods differ, and policies tailored for one subject cannot be mechanically extended to related ones. (¶¶ 67, 68, 69, 70, 71, 73)
- Nevertheless, given Tata Steel's holding that the royalty rules are general and apply to coal as to other minerals, and the Union's own acknowledgment through its committee and the public consultation notice of 25.05.2022 that royalty is being charged on royalty, the Court did not shut its eyes to the prima facie anomaly but refrained from ruling further while the authorities were reconsidering it. (¶¶ 72, 74, 75, 76, 83)
- Having started a consultation to amend the law, the authorities cannot keep the issue in limbo indefinitely; discretion to make policy does not permit endlessly prolonging the decision. The Union was directed to conclude the consultation and decide, considering the petitioners' representations, and the petitioners remain free to challenge the final decision. (¶¶ 77, 78, 79, 80, 83, 84)
Result
Challenge to the Explanations answered accordingly without striking them down; respondents given two months to conclude the public consultation begun by the notice dated 25.05.2022 and take a final decision on the cascading effect of royalty on royalty in computing average sale price; matter to be listed after two months to report compliance; petitioners may challenge the final decision.