New Delhi: The Supreme Court (SC) on Monday upheld the constitutional validity of the provisions used to compute royalty on major minerals, dismissing a challenge brought by Kirloskar Ferrous Industries Ltd against the Centre. In a ruling with significant implications for the mining sector and state revenues, a bench of Justices JB Pardiwala and KV Viswanathan held that the relevant rules rightly include royalty and other statutory payments within the "sale value" used to arrive at mineral prices.
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Justice Viswanathan, who authored the 82-page judgment for the bench, dismissed the petition against Rule 38 of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules.
The company had challenged the explanations to Rule 38 of the 2016 Rules, which state that no deductions should be made for payments towards royalty, the District Mineral Foundation (DMF) and the National Mineral Exploration Trust (NMET) while calculating the "sale value" of minerals. It had assailed the rules as being ultra vires to Articles 14 (right to equality) and 19(1)(g) (freedom to conduct business) of the Constitution.
Upholding the provisions, the bench said, "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, are 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. The writ petition is dismissed," it said.
The government had contended that striking down the rules would cause a loss of about Rs 7 lakh crore to the state exchequer over the 50-year lease periods of auctioned mines.
Rejecting the petitioner's arguments, the court held that the legislature is empowered to create "legal fictions" to prevent tax evasion. "As a means to check evasion, a measure has been prescribed... and we find nothing illegal in the same," the bench said.
The verdict dismissed the claim of discrimination between coal and iron ore, holding that the two cannot be equated. It observed that coal production is largely a monopoly, dominated by Coal India Limited (CIL), whereas iron ore involves many private players, which requires a different regulatory mechanism to guard against under-invoicing.
The bench said the judiciary should show "deference" to law-making authorities in complex economic matters, and that individual hardship cannot be a ground to strike down a fiscal policy meant for public welfare.
Invoking the principle that the welfare of the people is the supreme law, the verdict held that private rights must yield to the public interest and the financial health of the states.
The verdict directly affects producers of major minerals — those governed by the MMDR Act other than atomic and hydrocarbon energy minerals — whose royalty is computed on the average sale price of auctioned blocks.
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The iron ore and steel sector is most squarely in the frame. Miners of other major minerals such as bauxite, limestone and manganese, feeding the aluminium, cement and alloy industries, fall within the same computation framework and are similarly bound by the ruling.
