Kirloskar Ferrous Industries Ltd. and Anr. v. Union of India & Anr.

persons and to collect the tax due in certain trades, if the legislature in its wisdom thought that it will facilitate the collection of the tax due from such specified traders on a “presumptive basis”, there is nothing in the said legislative measure to offend Article 14 of the Constitution. In the light of the legal principles stated above, we are unable to hold that Section 44-AC read with Section 206-C is wholly hit by Article 14 of the Constitution of India.”

APPLICATION OF THE LAW TO THE FACTS: -

85. It is time to apply the above principles to the case at hand. As adverted to earlier, there is no dispute on the legislative competence of the Parliament to enact the law and the power to make subordinate legislation in the Central Government. Under Section 9(2) of the MMDR Act read with Entry 24 of the Second Schedule, royalty is levied at 15% of ‘Average Sale Price’ on ad valorem basis. Sale value is a component of ASP under Rule 42 of the 2016 Rules. When it is prescribed in the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules, that while computing the sale value, no deduction from the gross amount shall be made in respect of Royalty, payments to the DMF and NMET, all that occurs is that a measure is provided to compute sale value based on which average sale price will be arrived at. Under Rule 42, the ex-mine price is used to compute the average sale price of mineral grade/concentrate and under Rule 42(2)(b), ex-mine price of mineral grade/concentrate where domestic sale has occurred, is the sale value of the mineral less the 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, as notified by the Indian Bureau of Mines, from time to time, divided by the total quantity sold. Under Rule 42(3), the average sale price of any mineral grade/concentrate in respect of a month shall be the weighted average of the ex-mine prices of the non-captive mines, computed in accordance with Rule 42, the weight being the quantity despatched from the mining lease area of mineral grade/concentrate, relevant to each ex-mine price. As to what is sale value, as mentioned in Rule 42(b) would be discernible from Rule 38, which has already been discussed.

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86. It is further to be examined whether the measure has any nexus and rational connection with the nature of levy. Further, the justification offered by the Union of India for adopting such a measure also needs to be examined.

87. The justification offered by the Union of India is that unlike for coal, where the notified prices, auction prices of Coal India Limited and Singareni Collieries Company Limited or the import price form the basis of National Coal Index (NCI), there is no such mechanism for iron ore.

88. As far as the iron ore is concerned, the ASP is depended on market forces and is not decided by the Government.

89. The ASP is arrived at based on the data given by the miners themselves. Detailed instances of manipulation of ASP with regard to different grades of iron ore have been provided in the form of an appendix to the additional affidavit. For the period from August, 2022 to January, 2023, the Union of India has contended that since the successful bidders have quoted their bid price as a percentage of the ASP as far as premium for mining lease was concerned, in several quarters, all out efforts have been made to depress the ASP to keep the premium down. Further, depressing the ASP will also help in reducing the royalty and payments made towards DMF and NMET as royalty has a percentage of the average sale price and the other levies are a percentage of royalty.

90. The Union of India has demonstrated before us by producing graphs, charts and data that wherever highest ex-mine price was reported, the quantity despatched was NIL or very less. They also demonstrated that where the ex-mine price was low, the quantity despatched was high. It is contended that under the method of calculation of average sale price, weighted average of ex-mine price is relevant, and, in that context, despatched quantity is taken as the weight. They contend that by this jugglery, enormous loss is caused in royalty payments and in premium payments by beating down the average sale price. The graphs, charts and data have all been set out in the earlier part of this judgment.

91. It is the contention that the measure of levy and the decision not to exclude royalty and payments made towards DMF and NMET was taken as a regulatory measure to suppress the mischief, to prevent

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evasion to the extent possible and to advance the remedy, to arrive at a fair value of the mineral.

92. In this scenario, it cannot be said that the measure adopted is arbitrary and has no nexus and rational connection with the nature of the levy. The judgments of this Court in Balaji (supra), Sardar Baldev Singh (supra), Navnit Lal C. Javeri (supra) and A. Sanyasi Rao (supra), which have been elaborately discussed hereinabove, fully justify the measure adopted in the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules for computation of sale value which, in turn, is an essential factor in computation of the ASP.

93. In fact, in A. Sanyasi Rao (supra), while upholding the presumptive tax based on the purchase price, this Court made the following telling observations: - “17. …..Having regard to the past difficulties in making a normal assessment and collection in the case of certain categories of assessees, for convenience sake, the legislature has chosen to make appropriate provision for collection of tax at an anterior stage by adopting the purchase price as the measure of tax. In our view, this is permissible and the standard by which the amount of tax is measured, being the purchase price, will not in any way alter the nature and basis of levy viz. that the tax imposed is a tax on income. It cannot be labelled as a tax on purchase of goods.”

94. We find nothing manifestly arbitrary in the process adopted. There is nothing capricious or irrational about the measure and it cannot be said that it has been adopted without any determining principle nor do we find the measure excessive or disproportionate for it to be characterized as manifestly arbitrary.

95. We also do not find any violation of Article 14 of the Constitution from the angle of discrimination. The comparison with coal is completely unjustified as there is no concept of ASP in coal and that too based on data given by the miners. Hence, comparing coal and iron ore, in this context, is akin to comparing apples and oranges which we are not prepared to do. According to the petitioners, ad valorem cannot include in the value the levy of royalty, payments made towards DMF and NMET. We are not able to countenance that submission. As

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a means to check evasion, a measure has been prescribed under which ad valorem will be arrived at to check manipulation and to strike at evasion, certain factors have been loaded on to the sale value and we find nothing illegal in the same.

96. Perusal of the factual situation in Balaji (supra), Sardar Baldev Singh (supra), Navnit Lal C. Javeri (supra) and A. Sanyasi Rao (supra) clearly establish that certain legitimate measures needed to check evasion can always be adopted as the measure of levy. The argument on violation of Article 19(1)(g) also has no merit. In a classic passage of what broadly a reasonable restriction could encompass is available in the case of State of Madras vs. V.G. Row.12, wherein Patanjali Sastri, C.J., speaking for the Court, stated as under: - “….The nature of the right alleged to have been infringed, the underlying purpose of the restrictions imposed, the extent and urgency of the evil sought to be remedied thereby, the disproportion of the imposition, the prevailing conditions at the time, should all enter into the judicial verdict. In evaluating such elusive factors and forming their own conception of what is reasonable, in all the circumstances of a given case, it is inevitable that the social philosophy and the scale of values of the Judges participating in the decision should play an important part, and the limit to their interference with legislative judgment in such cases can only be dictated by their sense of responsibility and self-restraint and the sobering reflection that the Constitution is meant not only for people of their way of thinking but for all, and that the majority of the elected representatives of the people have, in authorising the imposition of the restrictions, considered them to be reasonable….”

97. The measure of levy, as provided, read with the explanation, is intended to ensure that, to the extent possible, loss of revenue is offset. Such loss of revenue occurs due to manipulation of prices. With the aid of graphs and charts, we have been shown some instances of clever stratagems being deployed to beat down the

12 [1952] SCR 597

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ASP. These are much more than mere canaries in the mine, literally and figuratively. It may be possible that all parties may not resort to such ingenious contrivances. However, as held in the precedents set out hereinabove, when a measure of levy is prescribed to check evasion, individual hardships cannot be determinative. Afterall, the grundnorm is “Salus populi suprema lex” – regard for the public welfare is the highest law. Private rights will have to cede to public interest. A Constitutional Court called upon to pronounce on the validity of such fiscal measures should be loath to interfere, for any interference in the absence of legitimate grounds would put public interest in jeopardy. For the reasons stated above, we do not consider the measure to be unreasonable or disproportionate.

98. Much was made out of the recommendations of Shri Praveen Kumar and Dr. Aruna Sharma Committee Reports. Committee Reports are only recommendatory in nature. If it were not, judicial review will be a meaningless exercise. In the challenge to the Constitutionality of the Rules as to demonstrate how the levy is illegal, the petitioners have not been able to establish unconstitutionality. On the contrary, the Union has offered proper justification for the measure of levy adopted and it passes constitutional muster.

99. The scope of the judgment of this Court dated 07.11.2024 in Writ Petition No. 715 of 2024 is clear in black and white. There was no pronouncement made on the constitutionality of the levy. The subsequent order dated 19.05.2025 left every liberty for the petitioners to challenge the decision of the government.

100. We have thoroughly and in a threadbare manner examined the contentions assailing the constitutional validity of the Explanations appended to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules and we do not find any infirmity in the impugned provisions. Hence, the judgement dated 07.11.2024 of this Court in Writ Petition No. 715 of 2024 cannot come to the aid of the petitioners.

101. The further argument that the levy breaches the three years’ cap under the proviso to Section 9(3) is also fallacious. Here, there is no revision of the rate of royalty. The injunction for three years is on the revision only for the rate of royalty.

102. The judgments cited by the petitioners have no relevance on the controversy in question and do not advance the case of the petitioners any further.

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CONCLUSION: -

103. For the reasons stated above, 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, is constitutional and valid. 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.

104. The writ petition is dismissed. No order as to costs.

Result of the case: Writ petition dismissed.