New Delhi: The Supreme Court has upheld the Centre’s methodology for calculating royalty on iron ore, ruling that the inclusion of royalty, District Mineral Foundation (DMF) contributions and National Mineral Exploration Trust (NMET) payments in the sale value while determining the Average Sale Price (ASP) is constitutional and legally valid. The Court dismissed a petition that argued the mechanism effectively resulted in an unlawful “royalty on royalty.”
The case arose from a petition filed by Kirloskar Ferrous Industries Ltd., which challenged the explanations inserted into the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016 and the Mineral Conservation and Development Rules, 2017. The company contended that the provisions artificially inflated the sale value, resulting in royalty being calculated on an enhanced base, contrary to the provisions of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act).
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Royalty in the mining sector is the payment made by a mining lease holder to the owner of mineral rights for extracting minerals from a leased area. The Supreme Court has previously held that royalty is not a tax but a contractual payment arising from a mining lease. Under Section 9 of the MMDR Act and Entry 24 of the Second Schedule, royalty on iron ore is levied at 15 per cent of the Average Sale Price (ASP) on an ad valorem basis.
The Indian Bureau of Mines (IBM) publishes the monthly Average Sale Price for different grades of minerals based on the weighted average of ex-mine sale prices reported by eligible mines. The ASP serves as the benchmark for calculating royalty and is also used to determine auction premiums and other statutory payments.
In addition to royalty, mining lease holders are required to contribute to two statutory funds. The District Mineral Foundation (DMF) finances welfare and development programmes in mining-affected areas, with iron ore lease holders contributing an amount equal to 10 per cent of the royalty. The National Mineral Exploration Trust (NMET) supports mineral exploration activities and is funded through a contribution equal to 2 per cent of the royalty.
The petitioners argued that the explanations inserted into the 2016 and 2017 Rules prohibit the deduction of royalty, DMF and NMET payments while determining the sale value. Since the sale value forms the basis of the ASP, they claimed that mining companies effectively pay royalty on an amount that already includes royalty and related statutory levies, creating a cascading financial burden amounting to “royalty on royalty.”
Defending the rules, the Union government argued that the methodology was introduced to curb price manipulation and under-invoicing in the iron ore sector. It maintained that the pricing mechanisms for coal and iron ore are fundamentally different, making separate methods of royalty computation both reasonable and necessary.
In its judgment, the Supreme Court held that the explanations contained in the 2016 and 2017 Rules do not violate Articles 14 and 19(1)(g) of the Constitution and are consistent with Section 9 of the MMDR Act. The Bench also rejected the contention that the methodology amounted to an indirect revision of royalty within the statutory three-year period, clarifying that the restriction applies only to revisions in the rate of royalty, not to the method used for calculating the ASP.
The ruling does not impose any new levy or increase the royalty rate. Instead, it affirms the validity of the existing calculation framework. As a result, the existing methodology for determining the Average Sale Price of iron ore will continue to remain in force, with royalty, DMF and NMET payments continuing to form part of the sale value unless the law or relevant rules are amended in the future.
About the author — Suvedita Nath is a science student with a growing interest in cybercrime and digital safety. She writes on online activity, cyber threats, and technology-driven risks. Her work focuses on clarity, accuracy, and public awareness.
