SC upholds Centre’s mining royalty formula, rejects Kirloskar’s challenge

The Supreme Court on Monday upheld the Centre’s method of calculating mining royalty, dismissing Kirloskar Ferrous Industries Ltd’s plea challenging the current formula resulting in “royalty” for mining companies.

A bench comprising Justices JB Pardiwala and KV Viswanathan refused to interfere with the existing royalty calculation framework, arguing that the methodology was a matter of fiscal and economic policy.

The decision is expected to provide certainty to the mining industry by preserving the existing concession framework. This also comes as a huge relief for the Center and mineral-rich states as any change in the royalty calculation methodology could have significantly impacted royalty collections and auction premiums linked to mineral production.

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The apex court observed that such policy decisions fall within the purview of the executive and should normally not be interfered with unless found to be arbitrary, unconstitutional or unlawful. Finding no such fault, the board approved the current privilege calculation mechanism.

“The petitioners failed to prove unconstitutionality. On the contrary, the Union presented appropriate justification for the tax measure adopted and it passed constitutional acceptance,” the panel said.

The formula for calculating the average selling price (ASP) of minerals forms the basis for determining the royalties that mining companies will pay.

Kirloskar Ferrous argued that under existing rules, the sale price used to calculate ASP already includes royalty and statutory contributions to the District Mineral Foundation (DMF) and the National Mineral Exploration Foundation (NMET).

Since royalties are calculated on this amount, the company argued that miners are already paying royalties on a value that includes royalties and other statutory taxes, resulting in a “royalty on royalty” and increasing their financial burden.

The company also relied on a committee formed by the Ministry of Mines, which acknowledged the cascading effect and recommended changes to the concession calculation mechanism.

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The government argued that while it excluded royalties and statutory fees from the royalty calculation for coal, similar relief had not been extended to iron ore and other minerals, making the current framework discriminatory.

However, the court accepted the Centre’s argument that the current methodology served a legitimate regulatory purpose.

The association relied on charts, graphs, and data to argue that some miners could lower the Average Selling Price by reporting higher prices for smaller amounts and lower prices for larger amounts, thus reducing royalty and auction premium payments. The Board held that the current formula has a reasonable link to preventing such revenue leakage and therefore cannot be described as arbitrary or unconstitutional.

The court also noted that although the mines ministry committee had recommended removal of the cascading effect, the committee reports were only advisory and could not determine the constitutional validity of the rules.

Rejecting the comparison with coal, the panel observed that the concession mechanism governing coal was significantly different and did not operate within the same ASP framework. It was stated that comparing coal with iron ore for royalty calculation would be like “comparing apples and oranges”.

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The case traces its origins to a writ petition filed by Kirloskar Ferrous in 2024, challenging the mining concession rules under the Mineral (Other than Atomic and Hydrocarbon Energy Minerals) Concession Rules, 2016 and the Mineral Conservation and Development Rules, 2017.

In November 2024, the Supreme Court refrained from ruling on the constitutional validity of the provisions and instead directed the Center to complete the policy review after seeking public consultation.

After review, the Center decided to retain the current royalty calculation methodology. Kirloskar Ferrous then filed a new writ petition challenging the government’s decision to preserve the framework, leading to Monday’s decision rejecting the company’s appeal.

Emailed questions to Kirloskar Ferrous remained unanswered by press time.