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TMI Blog2024 (11) TMI 340X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and Regulation) Amendment Act, 2015 (for short the "2015 Amendment Act"). The petitioner no.2 herein is one of the shareholders in the petitioner no.1 company. The respondent no. 1 herein is the Union of India through the Secretary, Ministry of Mines, whereas the respondent no. 2 herein is the Indian Bureau of Mines. 3. As per Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (for short, the ("MMDR, Act"), the revenue required to be paid for any mineral removed or consumed from the leasehold area would be in the form of royalty and mandates the mining leaseholder to pay such royalty as may be specified in the Second Schedule in respect of any minerals removed or consumed in the leased area allotted to him. Section 9 sub-section (3) of the MMDR Act further empowers the Central Government to enhance or reduce the rate of royalty payable by the leaseholders by way of a notification once every 3-years. The aforesaid provision reads as under:- "9. Royalties in respect of mining leases. - (1) The holder of a mining lease granted before the commencement of this Act shall, notwithstanding anything contained in the instrument of lease or in any law in for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: (1) Every mine owner, his agent, manager, employee, contractor or sub-lessee shall compute the amount of royalty on minerals where such royalty is charged on ad valorem basis as follows: (i) for all non-atomic and non fuel minerals sold in the domestic market or consumed in captive plants or exported by the mine owners (other than bauxite and laterite despatched for use in alumina and metallurgical industries, copper, lead, zinc, tin, nickel, gold, silver and minerals specified under Atomic Energy Act), the State-wise sale prices for different minerals as published by Indian Bureau of Mines shall be the sale price for computation of royalty in respect of any mineral produced any time during a month in any mine in that State, and the royalty shall be computed as per the formula given below: Royalty = Sale price of mineral (grade wise and State-wise) published by IBM X Rate of royalty (in percentage) X Total quantity of mineral grade produced/ dispatched: Provided that if for a particular mineral, the information for a State for a particular month is not published by the Indian Bureau of Mines, the latest information available for that mineral in the State shall be ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of the mine owners shall be considered for the purpose of computing the royalty in the first place and then the royalty shall be computed as the percentage of the average monthly price for the contained aluminium metal in the said alumina content of the ore published by the Indian Bureau of Mines, on the following basis namely:- Royalty = 52.9 100 X Percentage of Al2O3 in the bauxite on dry basis (as reported in the Statutory Monthly return under MCDR) X Average monthly price of aluminium as published by the IBM X Rupee/dollar exchange rate (selling) as on the last date of the period of the computation of royalty X Rate of royalty (in percentage) Provided that for computing the royalty for bauxite or laterite despatched for end use other than alumina and aluminium metal extraction and for exports provisions of this clause shall not apply. (2) In case of metallic ores based on metal contained in ore and metal prices based on benchmark prices, the royalty shall be charged on dry basis, and the mine owner shall establish suitable facilities for collection of sample and its analysis on dry basis at the mine site." 6. A bare perusal of the aforesaid provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction is on an arms' length basis and the price is the sole consideration for the sale, excluding taxes, if any. Explanation - For the purpose of computing sale value no deduction from the gross amount will be made in respect of royalty, payments to the District Mineral Foundation and payments to the National Mineral Exploration Trust." (Emphasis supplied) 11. Rule 39 sub-rule (3) of the MCR, 2016 further provides how royalty is to be paid and the manner in which it is to be computed. It stipulates that royalty in respect of any mineral is to be paid on an Ad valorem basis. It further provides that royalty shall be calculated at the specified percentage of the 'average sale price' of such mineral for the month of removal / consumption as published by the Indian Bureau of Mines. 12. Rule 42 of the MCR, 2016 provides the manner in which the 'average sale price' shall be computed. Rule 42 sub-rule (1) stipulates that the average sale price of mineral grade / concentrate shall be computed on the basis of its 'ex- mine price'. Rule 42 sub-rule (3) further provides that the 'average sale price' shall be the weighted average of the 'ex-mine price' as computed in terms of sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a month shall be the weighted average of the ex-mine prices of the non-captive mines, accordance with computed the in above provisions, the weight being the quantity dispatched from the mining lease area of mineral grade I concentrate relevant to each ex-mine price." 13. In other words, Rule 39(3) of the MCR, 2016 provides that royalty would be calculated as the percentage of the average of the 'Sale Value'. The Sale Value of any graded mineral / concentrate for the purposes of these rules in terms of Rule 38 is the gross amount payable as per the sale invoice including the royalty, DMF and NEMT paid. This Sale Value minus the actual expenditure incurred (without deducting the royalty, DMF and NEMT in terms of the Explanation to Rule 38) would be the ex-mine price of such mineral grade / concentrate. The weighted average of this 'ex-mine price' shall be the 'Average Sale Price' for the purposes of calculating royalty. 14. Similarly, under the Mineral Conservation and Development Rules, 2017 (for short, the "MCDR, 2017") that was enacted by the Central Government for the conservation and systematic development of minerals in exercise of its powers under Rule 18 of the MMDR Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. It is the case of the petitioners that, in view of the Explanation(s) appended to the definition of 'Sale Value' in Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017, royalty which has already been paid in the previous month is again being factored for the purposes of computation of royalty to be paid for the subsequent months. Thus, it is the contention of the petitioners that this "compounding" of royalty by virtue of the aforesaid Explanations is manifestly arbitrary inasmuch as it has led to a cascading effect within the fold of determination of the rate of royalty under Section 9 sub-section (3) of the MMDR Act. 16. However, when it comes to computation of royalty in respect of coal, it was submitted by the petitioners that the Central Government has remedied the aforesaid anomaly by excluding the previously paid royalty and contributions towards DMF and NMET in its calculation, by way of an amendment vide Notification No. GSR 445(E) by inserting an Explanation in Entry A, Item 10 in the Second Schedule of the MMDR Act. The relevant provision reads as under: - "Explanation:- For the purposes of this sub entry - (iii) (iv) Actual price means the sale invoic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that ex-mine price for determination of ASP shall exclude GST, export duty, royalty. DMF & NMET & such other levies as may be prescribed; (iii) the change will be applicable for all the MLs, whether auctioned/ granted before or after the commencement of the proposed MMDR Amendment Act, for the minerals removed or consumed from the leased area after the commencement of the said Act; and (iv) adoption of new formula only for the future dues for existing MLs arising after the amendment" 20. The petitioners on the strength of the aforesaid notices issued by the Ministry of Mines have contended that although the respondents themselves have acknowledged the compounding of royalty in the computation of 'average sale price' yet no action or amendment has been made to the MMDR Act and the relevant rules thereunder in this regard. 21. In such circumstances referred to above, the petitioners have come up before this Court with the present writ petition. B. SUBMISSIONS OF THE PETITIONER 22. Dr. A.M. Singhvi, the learned senior counsel for the petitioners presented the statutory background to us in his submissions. He submitted that Section 9(2) of the MMDR Act contemplates payment of roy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y at the prescribed rate; and, secondly, a re-charge of royalty on royalty at a prescribed rate. It was submitted that such re-charge of royalty on royalty is ultra vires to the scope of Section 9(3) of the MMDR Act. 27. The learned senior counsel contended that the Impugned Explanations are manifestly arbitrary for the following reasons: (i) The present methodology for computing royalty leads to a compounding or cascading effect as it creates a charge of royalty on previous month's royalty. (ii) It has been held by a 9-Judge Bench of this Court in Mineral Area Development Authority & Anr. v. Steel Authority of India Limited & Anr. reported in 2024 SCC OnLine SC 1974 that royalty is a consideration for extracting minerals. Therefore, such consideration cannot be compounded every month. (iii) Rule 42(2)(b) of the MCR, 2016 excludes actual expenditure incurred towards transportation, loading, unloading, rent for the plot at the stocking yard, charges for sampling and analysis and any other charges beyond mining lease area. However, the impugned Explanations do not exclude royalty, DMF and NMET contributions from such actual expenditure. It was contended that royalty is also an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned senior counsel for the Union of India, submitted that the compounding or cascading effect occurring every single month cannot come within the fold of determination of the rate of royalty under Section 9(3) of the MMDR Act, as it would be in contravention to the proviso thereto which prohibits a change of rate of royalty for three years. C. SUBMISSIONS OF THE RESPONDENT 34. Mr. Shailesh Madiyal, the learned ASG appearing on behalf of the Union of India presented the scheme of the MMDR Act and the MCR, 2016 in relation to the computation of royalty and submitted that Section 9(1) of the MMDR Act requires the holder of a mining lease to pay royalty in respect of the mineral being mined from the lease area at the rate specified in Schedule II of the MMDR Act. He apprised us of the fact that Section 9(3) permits the Government of India to issue notifications to amend Schedule II to increase or reduce the rate at which royalty is payable. He informed that the rate of royalty for iron ore at present is 15% of average sale price on ad valorem basis. 35. The learned ASG submitted that the computation of the ASP is to be done on a monthly basis and as per Rule 42(3), the ASP of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ids submitted are taking into consideration the existing legal regime, which includes Rule 38 of the MCR, 2016 as well as the Explanation thereto, and the bidders are aware that royalty and auction premium is calculated on the basis of the sale value which is inclusive of the royalty and contributions to DMF and NMET of the previous month. He submitted that the revenue of a State comprises of the royalty collected from such mining leases. Changing the methodology of calculation of "sale value" by excluding the royalty payable for mining leases which have already been auctioned would therefore, result in loss of revenue to the States as estimated at the beginning of the auctioning process. It was submitted that it is important that the revenue of the state Governments should be protected. 42. He further submitted that there is no legal bar on the imposition of royalty on royalty and cannot be adjudged on the same footing as a case of "tax on tax", in light of this Court's decision in Mineral Area Development Authority (supra)wherein it was held that royalty is not a tax. 43. On the status of public consultations, Mr. Madiyal submitted that the Committee constituted by the Ministry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y decisions are the domain of the executive authority of the State and that the courts should not embark on the unchartered ocean of public policy and should not question the efficacy or otherwise of such policy so long the same does not offend any provision of the stature or the Constitution of India. It further observed that unless the policy framed is absolutely capricious or not informed by reasons, the court cannot and should not outstep its limit and tinker with the policy decision of the executive functionary of the State. The relevant observations read as under: - "41. After giving our careful consideration to the facts and circumstances of the case and to the submissions made by the learned counsel for the parties, it appears to us that the Industrial Policy of 1979 which was subsequently revised from time to time cannot be held to be arbitrary and based on no reason whatsoever but founded on mere ipse dixit of the State Government of M.P. The executive authority of the State must be held to be within its competence to frame a policy for the administration of the State. Unless the policy framed is absolutely capricious and, not being informed by any reason whatsoever, ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress opinion as to whether a particular policy should be adopted or not, and no such direction can be given unless they pertain to the implementation of any policy as a result of which there is a violation or infringement of any constitutional or statutory provision. The relevant observations read as under: - "7. What has been said in respect of legislations is applicable even in respect of policies which have been adopted by Parliament. They cannot be tested in Court of Law. The courts cannot express their opinion as to whether at a particular juncture or under a particular situation prevailing in the country any such national policy should have been adopted or not. There may be views and views, opinions and opinions which may be shared and believed by citizens of the country including the representatives of the people in Parliament. But that has to be sorted out in Parliament which has to approve such policies. Privatisation is a fundamental concept underlying the questions about the power to make economic decisions. What should be the role of the State in the economic development of the nation? How the resources of the country shall be used? How the goals fixed shall be attain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that does not mean that the Central Government's power is restricted and that the Central Government cannot alter the mode of computation of royalty. Merely, because the methodology or formula for computation of royalty has been altered from what it was under the erstwhile MCR, 1960 will not make the new mechanism or methodology unreasonable or arbitrary and liable to be struck down. 51. From the above conspectus of decisions referred to by us, it is clear that the whether a particular policy is wise or that a better public policy can be evolved is purely the domain of the executive of the state. Matters such as computation of royalty or the levy of such royalty on different minerals is entirely a matter of policy making which is beyond the expertise and domain of the courts. It is no longer res-integra, that a question as regards the validity of a particular policy is concerned with reviewing not the merits of such decision or policy, but the very policy making process itself. The duty of the courts is to confine itself to the question of legality and its concern should be whether a policymaking authority exceeded its powers, whether it committed an error of law or committed a br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, they should not replace policymakers' judgments with their own unless absolutely necessary. 55. Policy decisions often require the expertise of professionals and specialists in fields such as economics, public health, national security, and environmental science. These domains involve specialized knowledge that judges, as generalists in legal matters, may lack. For instance, in economic policy, the executive may decide on trade tariffs or subsidies based on extensive data and projections that aim to balance domestic industry support with global trade commitments. The courts, lacking the same level of economic expertise and without the authority to make trade-offs among competing policy objectives, is typically not equipped to second-guess these kinds of decisions. 56. While courts have the power of judicial review to ensure that executive actions and legislative enactments comply with the Constitution, this power is not absolute. Judicial review is meant to act as a safeguard against actions that overstep legal boundaries or infringe on fundamental rights, but it does not entail a comprehensive re-evaluation of the policy's wisdom. The judicial review of policy deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the policy-making process. This balance ensures that while courts do not interfere in matters of policy wisdom, they remain vigilant guardians of constitutional rights. 61. In the present case, there is no doubt that the mechanism for computation of royalty in terms of Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 devised by the respondents might have onerous implications in monetary terms on the mining leaseholders inasmuch as there is a compounding effect on the rate of royalty for every subsequent month. However, this Court in the absence of anything to show that such policy is in excess of the powers or domain of the respondents herein or in breach of any statutory provision, cannot strike down the same. 62. It was argued by the petitioners, that here is no statutory prescription for the inclusion of royalty, DMF and NMET contributions while computing ASP. In other words, but for these Explanations, there would be no compounding or cascading effect in the computation of royalty. 63. This Court in State of Punjab v. Principal Secretary to the Governor of Punjab & Anr. reported in 2023 INSC 1017 it was held that a proviso may be in the form of an exception or in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtained unless it is to be inferred from the language used. An 'explanation' must be interpreted according to its own tenor. Sometimes an explanation is appended to stress upon a particular thing which ordinarily would not appear clearly from the provisions of the section. The proper function of an explanation is to make plain or elucidate what is enacted in the substantive provision and not to add or subtract from it. Thus, an explanation does not either restrict or extend the enacting part; it does not enlarge or narrow down the scope of the original section that it is supposed to explain. The Explanation must be interpreted according to its own tenor; that it is meant to explain and not vice versa. Explanation added to a statutory provision is not a substantive provision in any sense of the term but as the plain meaning of the word itself shows it is merely meant to explain or clarify certain ambiguities which may have crept in the statutory provision. 66. Merely because the Explanation(s) to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 provides that there shall be no deduction of royalty, payments to the District Mineral Foundation and payments to the Nationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al rights. ..." 69. While examining the challenge to the validity of laws relating to economic activities, the courts must be slow and circumspect. A higher degree of deference needs to be shown in such matters, and sufficient flexibility should be given to the legislature and the executive in dealing with economic matters. Complex issues of economic and fiscal nature cannot be construed by any strait-jacket formula or unidirectional approach. This Court has time and again recognised that a judicial hands-off approach must be followed qua economic legislation and that the legislature is to be allowed wide latitude in experimenting with economic legislation, by virtue of it being an extension of the Government's economic policy. 70. Since the MMDR Act and the rules thereunder pertain to the extraction, disposal and sale of natural resources which is an economic policy that entails intricate economic choices and have a direct effect on the macroeconomics, we are of the considered opinion that when it comes to computation of royalty the legislature must have greater play in the joints. 71. The exclusion of royalty, and contributions towards DMF and NMET paid previously for coal bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluding only coal. On the contrary, in NMDC [National Mineral Development Corpn. Ltd. v. State of M.P., (2004) 6 SCC 281] this Court has observed that these Rules are general in nature, applicable to all types of minerals, which includes coal. The expression of opinion by the Union of India is contrary to the observations of this Court. 71. Therefore, on a plain reading of Rule 64-B and Rule 64-C of the MCR, we are of the opinion that with effect from 25-9-2000 when these Rules were inserted in the MCR, royalty is payable on all minerals including coal at the stage mentioned in these Rules, that is, on removal of the mineral from the boundaries of the leased area. For the period prior to that, the law laid down in Central Coalfields Ltd. [Central Coalfields Ltd. v. State of Jharkhand, Civil Appeal No. 8395 of 2001 decided by three learned Judges on 24-9-2003. Ed. : Now reported at (2015) 6 SCC 220.] will operate, as far as coal is concerned, from 10-8-1998 when SAIL [State of Orissa v. SAIL, (1998) 6 SCC 476] was decided, though for different reasons." (Emphasis supplied) 75. Even the respondents herein appear to have acknowledged that the differing mechanism for computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion which it undertook in terms of the policy document militate against accepting such a notion of State power. The State must discard the colonial notion that it is a sovereign handing out doles at its will. Its policies give rise to legitimate expectations that the State will act according to what it puts forth in the public realm. In all its actions, the State is bound to act fairly, in a transparent manner. This is an elementary requirement of the guarantee against arbitrary State action which Article 14 of the Constitution adopts. A deprivation of the entitlement of private citizens and private business must be proportional to a requirement grounded in public interest. This conception of State power has been recognised by this Court in a consistent line of decisions. As an illustration, we would like to extract this Court's observations in National Buildings Construction Corpn. [National Buildings Construction Corpn. v. S. Raghunathan, (1998) 7 SCC 66 : 1998 SCC (L&S) 1770] : (SCC p. 75, para 18) "18. ... The Government and its departments, in administering the affairs of the country, are expected to honour their statements of policy or intention and treat the citizens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ates may, no doubt, have to be accepted and the assurances given to them may have to be observed. But considered broadly in the light of the basic principle of the equality before law, it seems somewhat odd that Section 87-B should continue to operate for all time. For past dealings and transactions, protection may justifiably be given to Rulers of former Indian States; but the Central Government may examine the question as to whether for transactions subsequent to 26th of January, 1950, this protection need or should be continued. If under the Constitution all citizens are equal, it may be desirable to confine the operation of Section 87- B to past transactions and not to perpetuate the anomaly of the distinction between the rest of the citizens and Rulers of former Indian States. With the passage of time, the validity of historical considerations on which Section 87-B is founded will wear out and the continuance of the said section in the Code of Civil Procedure may later be open to serious challenge." (Emphasis supplied) 82. Similarly in H.H. Shri Swamiji of Shri Amar Mutt v. Commr., Hindu Religious and Charitable Endowments Deptt., reported in (1979) 4 SCC 642, this Court wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the respondents herein are already in seisin of the anomaly in computation of royalty and the policy is being reconsidered on the grounds raised by the petitioners herein, we do not say anything further as regards the provisions in question other than what we have observed. We clarify that this decision shall not preclude the petitioners from challenging the final policy decision that the respondents may take on completion of the ongoing consultation process. F. CONCLUSION 84. In view of the aforesaid, we grant the respondents a period of 2-months from the date of pronouncement of this judgment to conclude the public consultation process undertaken for amending the MMDR Act initiated pursuant to the Notice dated 25.05.2022 and take a final decisive call in regard to the cascading impact of royalty on royalty in the calculation of the 'average sale price' by virtue of the Explanation(s) to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017. 85. The challenge to the validity of Explanation(s) appended to Rule 38 of the MCR, 2016 and Rule 45 of the MCDR, 2017 is answered accordingly. 86. The Registry shall notify this matter before an appropriate Bench after a period o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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