Supreme Court upheld the constitutional validity of the Explanation to Rule 38 of the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016, and Rule 45(8)(a) of the Mineral Conservation and Development Rules, 2017. The Court affirmed that including payments made towards royalty, District Mineral Foundation (DMF), and National Mineral Exploration Trust (NMET) in the “average sale price” (ASP) calculation—which serves as the basis for calculating royalty—is a valid legislative measure to check tax evasion and under-invoicing in the mining sector.
Background The petitioners challenged the constitutional validity of the Explanation to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules. They contended that these provisions, by including royalty, DMF, and NMET contributions in the Average Sale Price (ASP), caused a “cascading effect” (royalty on royalty) and led to double taxation in auctioned mines. The petitioners argued these rules were ultra vires the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), and violated Articles 14 and 19(1)(g) of the Constitution.
Arguments
- Petitioners: Asserted that the inclusion of statutory levies in the ASP is arbitrary, causes excessive financial burden, and contradicts the principle that ASP should reflect the true value of the mineral. They drew parallels to coal, where such statutory dues are excluded from the “actual price” calculation.
- Union of India: Argued that the rules were designed to prevent large-scale under-invoicing, a problem prevalent in iron ore mining where disparate private players operate. They highlighted that the revenue loss to States if these provisions were removed would exceed ₹3 lakh crore over 50 years. They also clarified that comparing iron ore to coal is unjustified due to fundamental differences in market structure and price discovery mechanisms.
Court’s Observations
- Presumption of Constitutionality: The Court emphasized that subordinate legislation enjoys a presumption of constitutionality, and the burden lies on the petitioner to prove manifest arbitrariness or lack of legislative competence.
- Legislative Policy and Evasion: The Court held that the legislature has broad discretion in fiscal matters. Measures intended to prevent tax evasion—even if they involve “legal fictions” or proxy measures for value—are permissible if they have a rational nexus to the object of the Act.
- Nature of Levy: Drawing on precedents like Sanyasi Rao, the Court held that adopting a measure (like the inclusive ASP) to assess a levy does not change the nature of the levy itself; it is a valid tool to ensure the State receives its due revenue.
- Classification: The Court rejected the discrimination claim, stating that treating coal and iron ore differently is not arbitrary given the distinct commercial realities and risks of evasion in each sector.
Conclusion The Supreme Court dismissed the challenge, ruling that the impugned rules are not manifestly arbitrary or irrational. The Court concluded that the Government’s mechanism to load certain factors onto the sale value to check manipulation is a valid exercise of power to protect state revenue.
2026 INSC 679
Kirloskar Ferrous Industries Ltd. and Anr. vs. Union of India & Anr. (D.O.J. 13.07.2026)
