“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 (challenged 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 judgment stated.
A Division Bench of Justice J B Pardiwala and Justice K V Viswanathan dismissed a writ petition filed by Kirloskar Ferrous Industries and another, holding that the challenged provisions neither violate Articles 14 and 19(1)(g) of the Constitution (fundamental rights to equality and the freedom to practise any profession or business) nor exceed the rule-making powers conferred under the MMDR Act.
The dispute arose from explanations attached to the 2016 Rules and the 2017 Rules, which require royalty, DMF contributions and NMET payments to remain part of the sale value while determining the ASP. Since royalty is linked to the ASP, the petitioners argued that the framework effectively imposed royalty on amounts already paid as statutory levies, resulting in a cascading financial burden.
The litigation followed an earlier round before the top court in November 2024, when the Centre informed the Bench that it was reviewing the royalty computation mechanism after inviting public comments.
The Court had then allowed the government to complete the exercise. After deciding against any change, citing concerns over the possible impact on state revenues, the Centre defended the existing framework, prompting the present constitutional challenge.
Kirloskar Ferrous Industries argued that the computation mechanism departed from Section 9 of the MMDR Act, which envisages royalty on the value of minerals. According to the company, statutory payments such as royalty, DMF and NMET contributions do not form part of the mineral's inherent value and therefore should be excluded while arriving at the sale value. It also contended that the government's decision to retain the existing system, despite earlier considering amendments, was arbitrary and infringed the rights guaranteed under the Constitution.
The Union government, however, maintained that the formula was adopted to curb under-reporting of mineral prices and prevent revenue leakage.
It submitted that the ASP mechanism was introduced after authorities found that declared sale prices in some instances did not reflect prevailing market values. Including statutory levies within the sale value, it argued, formed part of a broader fiscal policy aimed at protecting public revenue. The Centre also said royalty regimes differ across minerals and that the separate treatment accorded to iron ore and coal could not be characterised as discriminatory.
Agreeing with the government's stand, the Supreme Court observed that fiscal and economic measures warrant a high degree of judicial restraint and cannot be struck down merely because an alternative policy may appear preferable.
The Bench accepted that the ASP framework was introduced to address price manipulation and under-invoicing in mineral transactions and held that the material placed on record justified the government's approach.
The Court further held that recommendations made by expert committees examining the royalty framework were advisory and did not bind the government to amend the rules. It also clarified that its 2024 order had not examined the validity of the provisions but had only permitted the Centre to conclude its policy review.
Rejecting all grounds of challenge, the Bench held that the rules neither violate constitutional guarantees nor travel beyond the powers conferred under the MMDR Act. It also rejected the argument that the mechanism amounted to an impermissible revision of royalty under Section 9(3), observing that the royalty rate itself remained unchanged and only the method of calculation had been questioned.
 "SC, Supreme Court")