Can Royalty, DMF and NMET Payments Be Included in Sale Value for Computing Royalty? Supreme Court Upholds Rules
Case Name: Kirloskar Ferrous Industries Ltd. & Anr. v. Union of India & Anr.
Date of Judgment: 13 July 2026
Citation: 2026 INSC 679; Writ Petition (Civil) No. 733 of 2025
Bench: Justice J.B. Pardiwala and Justice K.V. Viswanathan
Held: The Supreme Court upheld the constitutional validity of the Explanations appended 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, which include royalty, District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET) payments in the sale value while computing the Average Sale Price (ASP) for determination of royalty. The Court held that the impugned provisions neither violate Articles 14 and 19(1)(g) of the Constitution nor exceed the rule-making power under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957. It observed that the measure of a fiscal levy is a matter of legislative policy, and the adopted methodology had a reasonable nexus with the object of preventing undervaluation and revenue leakage in mineral transactions.
Summary: The petitioners, engaged in iron ore mining, challenged the validity of the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules. They argued that by including royalty, DMF and NMET payments in the sale value used for calculating the Average Sale Price (ASP), the rules effectively resulted in “royalty on royalty” and imposed an impermissible cascading financial burden. According to the petitioners, this mechanism was contrary to the concept of ad valorem royalty under Section 9 of the MMDR Act and amounted to an indirect enhancement of royalty beyond what Parliament had authorised. They also relied on the fact that a similar anomaly had been corrected for coal and referred to earlier committee reports recommending legislative amendments.
The Union of India defended the impugned provisions by contending that the methodology was deliberately adopted to address widespread under-invoicing and manipulation of sale prices in the iron ore sector. Unlike coal, where prices are largely determined through a different mechanism, iron ore is mined by numerous private operators, making a robust ASP mechanism essential to protect public revenue. The Government also highlighted that the proposed amendments considered earlier were ultimately rejected as they would significantly reduce State revenues and adversely affect the auction-based mineral allocation regime. The Court noted that the legislature and rule-making authority enjoy considerable latitude in designing fiscal measures and that judicial review in matters of economic policy is necessarily limited.
After analysing constitutional principles governing fiscal legislation, the Supreme Court held that the challenge confused the nature of the levy with its measure. It reiterated that while royalty remains the levy authorised by Section 9 of the MMDR Act, the manner of computing its measure can legitimately be prescribed through subordinate legislation, provided it bears a reasonable nexus with the statutory object. The Court accepted the Government’s explanation that inclusion of royalty, DMF and NMET components in sale value was intended to curb manipulation of ex-mine prices and safeguard public revenue. It further rejected the contention that the methodology amounted to a revision of royalty every month, clarifying that only the valuation mechanism changes with market conditions while the statutory rate of royalty remains unchanged.
Decision: The Supreme Court dismissed the writ petition and upheld the constitutional validity of the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules. It held that inclusion of royalty, DMF and NMET payments in the sale value for computing the Average Sale Price is constitutionally valid, does not violate Articles 14 or 19(1)(g), and is not ultra vires Section 9 of the MMDR Act. The Court found no infirmity in the Union Government’s policy decision to retain the existing methodology and declined to interfere with the impugned provisions. No order as to costs was passed.