Supreme Court upholds Centre's mining royalty calculation formula

India's Supreme Court has affirmed the central government's method for calculating mining royalties, dismissing a challenge from Kirloskar Ferrous Industries Ltd. The company had argued that the existing formula, which includes royalty payments in the calculation of the average sale price (ASP) of minerals, resulted in "royalty on royalty" and imposed an unfair financial burden.

A bench of justices JB Pardiwala and KV Viswanathan upheld the provisions governing the ASP computation. They stated that the Union government's methodology is a fiscal and economic policy designed to prevent tax evasion and is neither unconstitutional nor arbitrary. The court's decision means that royalty, contributions to the District Mineral Foundation (DMF), and the National Mineral Exploration Trust (NMET) will continue to be included when determining the sale value for ASP.

This ruling is expected to bring much-needed certainty to the mining sector by maintaining the current royalty framework. It also offers significant relief to the central government and states with abundant mineral resources, as any alteration to the royalty calculation could have impacted royalty collections and auction premiums tied to mineral output. The court dismissed the writ petition, validating the constitutional validity of the relevant rules under the Minerals (Other than Atomic and Hydro Carbons Energy Minerals) Concession Rules, 2016, and the Mineral Conservation and Development Rules, 2017.

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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.