M/S. MSPL LIMITED vs THE STATE OF KARNATAKA
- Court
- Karnataka High Court
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WP No. 6690 of 2023
TH
RESERVED ON 14 JULY 2026
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 29 DAY OF JULY, 2026
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MRS. JUSTICE K.S. HEMALEKHA
WRIT PETITION NO. 6690 OF 2023 (GM-MM-S)
BETWEEN:
1. M/S. MSPL LIMITED
CORPORATE OFFICE SITUTATED AT
BALDOTA ENLCAVE
ABHERAJ BALDOTA ROAD
HOSAPETE - 583 203
VIJAYANAGAR DISTRICT
REP. BY ITS AUTHORIZED SIGNATORY
SRI K.A.V. PRASAD
S/O SRI P.S. KASIBHATLA
AGED 57 YEARS
…PETITIONER
Digitally
signed by
SRIDEVI S
Location:
High Court
of Karnataka
(BY SRI ARVIND NAYAR, SENIOR ADVOCATE A/W
SRI SWAMY M.M., ADVOCATE)
AND:
1. THE STATE OF KARNATAKA
REP. BY ITS SECRETARY (MINES)
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WP No. 6690 of 2023
DEPARTMENT OF COMMERCE AND INDUSTRIES
ST
VIKAS SOUDHA, 1 FLOOR
BENGALURU - 560 001
2. THE DIRECTOR OF MINES AND GEOLOGY
TH
KHANIJA BHAVAN, 5 CROSS
RACE COURSE ROAD
BENGALURU - 560 001
3. THE DEPUTY DIRECTOR
MINES AND GEOLOGY
DEPARTMENT OF MINES AND GEOLOGY
HOSAPETE - 583 201
BALLARI DISTRICT
…RESPONDENTS
(BY SRI K.S. HARISH, GOVERNMENT ADVOCATE)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE
A WRIT IN THE NATURE OF CERTIORARI, OR ANY OTHER
APPROPRIATE WRIT, ORDER OR DIRECTION AND QUASH THE
COMMUNICATION/ORDER DATED 01/03.06.2022 BEARING
No. ಗಭೂಇ / ಉ ೊ / ಗಗು
ಾ /2022-23/1328 (No. DMG / DDHpt / ML
/2022-23/1328) ISSUED BY THE RESPONDENTS VIDE
ANNEXURE - 'Q', IN SO FAR AS THE PETITIONER IS
CONCERNED & ETC.
THIS WRIT PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS, COMING ON FOR
PRONOUNCEMENT THIS DAY, ORDER WAS PRONOUNCED AS
UNDER:
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WP No. 6690 of 2023
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MRS. JUSTICE K.S. HEMALEKHA
C.A.V. JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. The petitioner [ MSPL ] has filed the present petition, inter alia,
impugning the notice dated 01/03.06.2022 [ impugned order ]
issued by respondent No.3 directing MSPL not to convert the ore
with the size +10MM (Lumps) to -10MM (Fines) size by crushing,
and to maintain status quo with regard to the already processed -
10MM (Fines), approximately 5957 MT, till further orders. However,
MSPL is permitted to dispatch Fines that were obtained by the
earlier processing method of screening the extracted mineral; that
is, without subjecting it to further process of crushing. MSPL was
further restrained from crushing +10MM (Lumps) without the prior
permission of the concerned authorities.
2. Apparently, the impugned order is premised on the basis that
the royalty and other statutory payments, payable in respect of
Lumps (+10MM size) are higher than those in respect of Fines
(-10MM size), since royalty is levied on an ad valorem basis and
the average sale price published by the Indian Bureau of Mines, for
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Lumps is higher than that for Fines. Since MSPL was crushing the
Iron ore lumps [ Lumps ] to Iron ore fines [ Fines ] before dispatch,
and royalty was collected on the ore removed from the leased area,
the concerned authority reasoned that it was causing a loss to the
exchequer.
3. MSPL contends that the impugned order is without authority
of law as there is no provision that prevents a mining lessee from
crushing and processing the excavated mineral within the leased
area. It also claims that royalty and bid premium are to be collected
based on the dispatches and therefore, it would be liable to pay the
bid premium and royalty on the form of mineral dispatched. MSPL
contends that, in terms of Rule 8 of the Mineral (Auction) Rules,
2015 [ the Auction Rules ], a lessee is required to pay the value of
the minerals dispatched from a leased area, and the said provision
does not empower the concerned authority to collect the value of
unprocessed minerals that are not dispatched.
PREFATORY FACTS
4. MSPL is a Company engaged in mining business. It has
established a Pellet manufacturing plant at Halavarthy Village in
Koppal Taluk and District [ Pellet Plant ]. The main raw material for
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the Pellet Plant is iron ore Fines, that is, -10MM size. Accordingly,
MSPL purchases iron ore as raw material for manufacturing pellets
at its Pellet Plant. The same is acquired through E-auction or
extracted from captive mines.
5. The Supreme Court, by an order dated 30.07.2015 passed in
WP.No.562/2009, permitted entities manufacturing pellets to
participate in the auction of C-category mines as end-users. The
said mines would serve as captive mines for feeding the raw
material requirements of units manufacturing pellets.
6. Under Section 10B of the Mines & Minerals (Development
and Regulation) Act, 1957 [ the MMDR Act ], mining leases in
respect of notified minerals may be granted only through the
process of auction. Since iron ore is one of the notified mineral,
mining leases for iron ore could be granted by the State
Government only through the process of auction.
7. Pursuant to the Supreme Court's order dated 30.07.2015, and
in terms of the Auction Rules, the State Government initiated the
auction process by issuing a notice dated 30.11.2015 inviting
tenders in respect of 11 (eleven) mining blocks of C-category
mines, for captive use only.
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8. MSPL participated in the bidding process in respect of mining
lease of ML No.2487 Block in Kardikolla Village, Sandur Taluk,
Ballari District, Karnataka, which was earlier leased to
Lakshminarayana Mining Company. The said mining lease is over
an area measuring 86.12 hectares of Forest Land of NEB Range.
The auction was conducted on 03.10.2016 for grant of the mining
lease and MSPL was declared a preferred bidder. Accordingly, the
State Government issued a Letter of Intent dated 26.10.2016 in
MSPL's favour.
9. Thereafter, MSPL furnished a Mining Plan for approval of the
Indian Bureau of Mines, which was approved by letter dated
24.10.2017. The State Level Environment Impact Assessment
Authority, Karnataka passed an order, SEIAA 01 Misc. 2019 dated
29.01.2019, transferring the Environment Clearance which was
earlier granted to M/s. Lakshminarayana Mining Company in
respect of ML No.2487, in favour of MSPL.
10. By a letter dated 25.10.2019, the Ministry of Environment,
Forest and Climate Change, Government of India, granted approval
for transfer of Forest Clearance in MSPL's name. MSPL has since
been mining and extracting iron ore from the said mines for its
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captive use. Thereafter, the Mine Development and Production
Agreement [ the MDPA ] came to be executed between the State
Government and MSPL on 27.01.2020. Pursuant thereto, the
mining lease was granted in MSPL's favour by an order dated
01/03.02.2020 and the mining lease deed was duly registered.
11. The mining activity involves removal of overburden, drilling
and blasting of hard rocks. MSPL states that the run of mine
[ ROM ] is brought to a screening and crushing plant, where it is
screened to separate naturally occurring Fines. The remaining
Lumps are, thereafter, crushed and converted to Fines, which can
be used for making pellets at the Pellet Plant. The Fines, which
include naturally occurring Fines as well as Fines converted by
processing Lumps, are dispatched for use in the Pellet Plant.
12. MSPL pays royalty on the value of the mineral [ VoM ] – which
is in the form of Fines – dispatched to the Pellet Plant.
CONTROVERSY
13. MSPL claims that under Rule 39 (1) of the Minerals (Other
than Atomic and Hydro Carbons Energy Minerals) Concession
Rules, 2016 [ the Rules ], royalty is chargeable on the processed
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mineral removed from the leased area. Thus, it is liable to pay
royalty on the Fines, which are removed from the leased area for
use of the captive Pellet Plant. According to MSPL, it is not required
to pay the bid premium and royalty on the Lumps extracted from
the mine in question.
14. Rule 39 of the Rules has since been amended by virtue of the
Minerals (Other than Atomic and Hydro Carbons Energy Minerals)
Concession (Third Amendment) Rules, 2026 [ the Amendment
Rules ] whereby a proviso has been added which provides that in
case the processing of ROM results in decrease in its economic
value, then royalty shall be chargeable on the Lumps and Fines
after the initial screening of unprocessed ROM. Concededly, by
virtue of the said amendment, MSPL is required to pay royalty on
the dispatches based on the VoM (Lumps and Fines) after the initial
screening, but prior to being subjected to any process involving
crushing.
15. Mr Arvind Nayar, learned Senior Counsel appearing for
MSPL, contended that notwithstanding the amendment to Rule 39
of the Rules, MSPL was entitled to clear the current stockpile of
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Fines on the basis of Rule 39 of the Rules as in force prior to the
Amendment Rules coming into force on 10.04.2026.
16. Mr K.S. Harish, the learned Government Advocate appearing
for the State, contested the said contention. He submitted that the
proviso to Rule 39 (1) of the Rules was inserted with effect from
10.04.2026, and that there is no dispute that, for the period
thereafter, MSPL is required to pay royalty on the VoM of Lumps
and naturally occurring Fines as obtained on initial screening and
not on the basis of the form of mineral as dispatched. Thus, the
stockpile of processed Fines would also attract royalty on the VoM
of Lumps as and when the Fines are dispatched from the leased
area.
17. Next, he referred to Section 9 of the MMDR Act and
contended that royalty in respect of mining leases is payable on
any mineral that is removed or consumed. He submitted that since
crushing of Lumps was a part of the manufacturing process, the
same would amount to consumption. And, therefore the royalty
would be payable on the Lumps and Fines as initially screened;
that is, prior to the extracted Lumps being subjected to the process
of crushing. He also referred to communications exchanged prior to
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MSPL executing the MDPA and submitted that it was expressly
clarified that royalty would be paid on Lumps and Fines as initially
extracted. He contended that MSPL was in no manner of doubt as
to its obligation to pay royalty. He also referred to a letter dated
14.02.2024 approving the review and updation of Mining Plan and
submitted that one of the special conditions imposed was the
processing of +10MM size of Iron Ore into -10MM size of Iron Ore
(i.e., Fines) as proposed in the Mining Plan documents was subject
to an agreement between MSPL and the Department of Mines &
Geology regarding payment of royalty, value of mineral dispatch
and other taxes. He submitted that, the approval of the Mining Plan
was subject to the aforesaid condition, MSPL could not absolve
itself of the obligation.
18. He also referred to the decision of the Orissa High Court in
M/s. Mideast Integrated Steel Limited and another v. State of
1
Odisha , and on the strength of the said decision submitted that
the Second Schedule to the MMDR Act sets out three forms of iron
ore; Lumps, Fines and Concentrates. Since separate royalty is
provided for each of the three forms, royalty was payable once ore
is extracted and processed to such a form; it does not contemplate
1
2015 SCC Online Ori 489
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processing of iron ore from one form to another. Once the form,
which is to bear royalty is reached, royalty is payable on the said
form. Rule 39 does not accommodate further processing.
REASONS AND CONCLUSIONS
19. As is clear from the above, the controversy between the
parties is not whether MSPL is permitted to subject the Lumps to
further processing for conversion into Fines; the controversy
essentially is whether MSPL can reduce its liability to pay royalty on
account of processing part of the ROM from Lumps to Fines prior to
its dispatch from the leased area. MSPL's principal challenge to the
impugned order is premised on the ground that the respondent
authorities cannot prohibit processing and conversion of iron ore
Lumps of size +10MM to size -10MM by crushing. There is no
contest to this challenge, as the learned Government Advocate
readily accepted that there was no restriction on MSPL crushing
Lumps into Fines, other than the condition stipulated in the
approval of the revised Mining Plan.
20. It is also relevant to refer to the Circular dated 22.06.2020 [t he
Circular ] issued by respondent No.2 - the Director, Department of
Mines and Geology. The Circular expressly stipulated that under
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Rule 8 of the Auction Rules, the ratio of Lumps and Fines should be
as per actuals and “Crushing of Lumps is not permitted under any
circumstances”. The Circular also recorded that the grade and ratio
mentioned in Schedule C was notional, to arrive at stamp duty and
registration and, “it is expressly clarified that the ratio of Lumps and
Fines is the ratio after screening ROM and not by way of crushing
the material in the mine into Fines at any stage”.
21. MSPL assailed the validity of the Circular in a writ petition,
W.P.No.14/2021 (GM-MM-S), filed before this Court. This Court
disposed of the petition by an order dated 18.06.2021. The Court
referred to Rule 8 of the Auction Rules and clarified that Sub-rule
(1) of Rule 8 requires the State Government to specify in the tender
document the minimum percentage of the value of mineral
dispatched, known as the "reserve price". Under Sub-rule (3) of
Rule 8, the bidder is required to quote a percentage of the value of
the mineral dispatched equal to or above the reserve price. A
successful bidder is obligated to pay an amount equal to the
product of the mineral dispatched in a month. The said Rule does
not lay down any parameters for computing the value of minerals
dispatched for the purpose of making monthly payments. This
Court held that the payment of the bid amount would be governed
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by clauses 7.1.1 and 7.1.2 of the MDPA. The circular could not vary
the mode prescribed under the MDPA. The Court disposed of the
petition by holding that MSPL's liability to pay the bid amount would
be in accordance with clauses 7.1.1 and 7.1.2 of MDPA.
22. The said decision has attained finality. Clauses 7.1.1 and
7.1.2 of the MDPA are reproduced below:
"7.1 Payment of bid amount
7.1.1 The Successful Bidder shall make monthly
payments on the basis of the Final Price Offer (the
"Monthly Payment" ). The Monthly Payment shall
be computed on the basis of the Value of Mineral
Despatched.
7.1.2 The Successful Bidder shall make annual
payments on the basis of the Final Price Offer for
the value of the shortfall quantity (the " Annual
Payment "). In the event that the actual amount
despatch is lower than the Minimum Annual
Despatch Requirement in a financial year
st st
(financial year means from 1 April to 31 March),
the value of the resultant shortfall quantity shall be
calculated considering the following:
(a) Treatment of shortfall quantity: the shortfall
quantity shall be considered in the same ratio of
lumps and fines, as the ratio arrived at based on
the quantities of lumps and fines actually
despatched in the financial year. This ratio shall
be applied to the shortfall quantity to estimate the
shortfall quantity of lumps and shortfall quantity of
fines;
(b) Grade of ore for shortfall quantity: the grade
to be considered for the shortfall quantity of lumps
and shortfall quantity of fines will be the respective
weighted average grade of ore for lumps and
fines, which further will be based on the quantities
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and corresponding grades of lumps and fines
actually dispatched in the financial year; and
(c) Price to be applied for shortfall quantity: the
average of the monthly Average Sales Price
(Karnataka State) published by IBM for the grade
arrived at (b) above by lumps and fines for the
financial year shall be considered for the purpose
of calculation of payment related to Minimum
Annual Despatch Requirement.
Provided in case of no production during a
financial year, lumps: fines ratio, as per
despatches in the preceding year will be
considered for treatment of shortfall quantity by
lumps and fines, in such financial year. The
weighted average grade of ore taken separately
for lumps and fines in the preceding year's
despatches will be respectively considered for the
shortfall quantity of lumps and shortfall quantity of
fines for the financial year with no production.
However, price to be applied for the shortfall
quantity shall be based on average of the monthly
Average Sales Price (Karnataka State) published
by IBM for the concerned grade for the financial
year with no production for the purpose of
calculation of payment related to Minimum Annual
Despatch Requirement.
Provided further in case of no production after the
grant of mining lease, average grade in the
geological report shall be considered with lumps to
fines ratio at 50:50. Further, the price to be
applied for the shortfall quantity shall be based on
average of the monthly Average Sales Price
(Karnataka State) published by IBM for the
concerned grade for the financial year with no
production for the purpose of calculation of
payment related to Minimum Annual Despatch
Requirement."
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23. It is also relevant to refer to paragraph 10 of the order dated
18.06.2021 in WP.No.14/2021, which clearly sets out the manner in
which monthly and annual payments are to be made.
"10. As per Clause No.7.1.1 of the said Mine
Development and Production Agreement, the
monthly payment must be made by the petitioner
computed on the basis of the value of minerals
dispatched. Clause No.7.1.2 provides that the
annual payments have to be made on the basis of
the Final Price Offer for the value of shortfall
quantity. Thus, in the event of the actual annual
dispatch made during the course of the year being
lower than the specified minimum annual dispatch
requirements in a financial year, the value of the
resultant shortfall quantity is required to be
calculated as provided in Clause No.7.1.2 and is
required to be paid by the petitioner as annual
payment. On a conjoint reading of Clause
Nos.7.1.1 and 7.1.2 of the said Mine Development
and Production Agreement, it is very clear that
these two clauses take care of payment of the bid
amount by the petitioner. The monthly payments
have to be made only on the basis of computation
of value of minerals actually dispatched. While
making yearly payment, adjustments are required
to be made for ensuring that the petitioner meets
the minimum annual dispatch requirements as
specified. Thus, at the time of making annual
payment, adjustment is required to be made to
ensure that the petitioner maintains a ratio of
lumps and fines as provided in the contract and
also meets the requirement of specified minimum
annual dispatch."
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24. This Court also passed an interim order in conformity with the
order dated 18.06.2021 of this Court in WP.No.14/2021.
25. It is clear from the above that royalty is required to be paid on
the basis of actual dispatch. According to the State, it is based on
the ROM after initial screening into naturally occurring Fines and
Lumps. MSPL claims that it must be based entirely on Fines, as it
processes Lumps into Fines within the leased area before
physically dispatching them from the leased area.
26. We may note that the question regarding deriving the VoM
dispatched in respect of iron ore blocks was raised prior to MSPL
executing the MDPA. Respondent No.2 - The Director,
Departments of Mines and Geology had sent a letter dated
05.09.2019 expressly stating is under:
“It is expressly clarified that the ratio of Lumps and
Fines is the ratio after screening the ROM and not
by way of crushing the material in the mine into
Fines at any stage”.
27. MSPL responded to the said letter by its letter dated
09.12.2019, inter alia, stating that its Pellet Plant requires only
Fines and not Lumps. It claimed that the MMDR Act and the rules
framed thereunder provide for processing and payment of royalty
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only on the saleable product removed from the mines. MSPL called
upon the Director, Department of Mines and Geology, to confirm
that it was liable for payments, statutory or otherwise, only on iron
ore Fines dispatched to its Pellet Plant. However, the said
contention was not accepted, and this was communicated to MSPL
by a letter dated 06.01.2020. Notwithstanding the same, MSPL, by
its letter dated 16.01.2020, expressed its willingness to execute the
MDPA and the lease deed.
28. We may now proceed to examine the statutory framework
relevant to the controversy in this petition. Section 9 of the MMDR
Act provides for payment of royalty in respect of mining leases.
Section 9 of the MMDR Act is relevant and is set out below:
" 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 instrument
of lease or in any law in force at such
commencement, pay royalty in respect of any
mineral removed or consumed by him or by his
agent, manager, employee, contractor or sub-
lessee from the leased area after such
commencement, at the rate for the time being
specified in the Second Schedule in respect of that
mineral.
(2) The holder of a mining lease granted on or
after the commencement of this Act shall pay
royalty in respect of any 86[mineral removed or
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consumed by him or by his agent, manager,
employee, contractor or sub-lessee] from the
leased area at the rate for the time being specified
in the Second Schedule in respect of that mineral."
29. As is apparent from the above, the holder of a mining lease is
obligated to pay royalty in respect of any mineral which is removed
or consumed, at the rate specified in Second Schedule to the
MMDR Act. The Second Schedule to the MMDR Act refers to iron
ore (CLO, lumps, fines and concentrates all grades).
30. Rule 39 provides for payment of royalty. The said Rule, as in
force prior to 10.04.2026 is set out below:
"39. Payment of royalty
(1) In case processing of run-of-mine is carried out
within the leased area, then royalty shall be
chargeable on the processed mineral removed
from the leased area.
(2) In case run-of-mine is removed from the leased
area to a processing plant which is located outside
the leased area, then royalty shall be chargeable
on the unprocessed run-of-mine and not on the
processed product.
(3) Wherever the Act specifies that the royalty in
respect of any mineral is to be paid on an Ad
valorem basis, the royalty shall be calculated at
the specified percentage of the average sale price
of such mineral grade concentrate, for the month
of removal/consumption, as published by the
Indian Bureau of Mines.
(4) Where the Act specifies that the royalty in
respect of any mineral is to be paid based on
London Metal Exchange or London Bullion Market
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Association price, the royalty shall be calculated at
the specified percentage of the average sale price
of the metal for the month as published by the
Indian Bureau of Mines, for the metal contained in
the ore removed or the total by-product metal
actually produced, as the case may be, of such
mineral for the month.
(5) Wherever the Act specifies that the royalty of
any mineral is to be paid on tonnage basis, the
royalty shall be calculated as product of mineral
removed or consumed from the lease area and the
specified rate of royalty."
31. By virtue of the Amendment Rules, the following proviso was
inserted in Rule 39(1) of the Rules:
" 39. Payment of royalty .—(1) In case processing
of run-of-mine is carried out within the leased area,
then royalty shall be chargeable on the processed
mineral removed from the leased area:
Provided that in case the processing of run-of-
mine results in decrease in its economic value,
then royalty shall be chargeable on the lumps and
fines after initial screening of unprocessed run-of-
mine."
32. We may also refer to the meaning of the expression Run of
Mine, which is defined in Rule 2(1)(f) of the Rules as under:
" Rule 2(1)(f) " run-of-mine" means the raw
unprocessed or uncrushed material in its natural
state obtained after blasting or digging, from the
mineralised zone of a lease area;"
33. Under Sub-rule (1) of Rule 39 of the Rules, the lessee is
required to pay royalty on ROM as processed in the leased area.
However, if the ROM is removed from the leased area and
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processed at a processing plant located outside the leased area,
then in terms of Rule 39(2) of the Rules, royalty is chargeable on
the unprocessed ROM and not the processed product.
34. It is apparent that the principal objective of Rule 39(1) is to
ensure that any value addition to the unprocessed ROM, within the
leased area, is also included in the VoM. Therefore Rule 39(2) of the
Rules provides that if processing is carried out outside the leased
area, royalty will be charged on the unprocessed ROM. Plainly, the
legislative intent is not to include any processing which has the
effect of reducing the value of the ore. The literal interpretation of
Rule 39(1) of the Rules as was in force prior to 10.04.2026 clearly
militates against the legislative intent. The expression “ processing of
run-of-mine” as used in Rule 39(1) of the Rules must be interpreted as
processing that adds value to ROM and not a process that is
destructive of its economic value.
35. At this stage, it is also relevant to bear in mind that Section 9
of the MMDR Act contemplates payment of royalty on removal or
consumption. In the present case, crushing Lumps and converting
them to Fines is an integral part of MSPL's process of
manufacturing pellets. It amounts to treating the raw material for the
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purpose of manufacture. MSPL draws its raw material from mining
activities, which involve removal of overburden by digging and
blasting, and mechanical extraction of ore. The processing of ROM
by crushing Lumps into Fines is part of MSPL’s commercial activity
of manufacturing pellets. ROM is the raw material required for its
Pellet Plant and is consumed in the manufacture of pellets. Fines
are an intermediate product. Thus, the processing of ROM into
Fines, in one sense, is part of consuming it for the purpose of
manufacturing pellets.
36. The term ‘processing’ as used in Rule 39 (1) does not
envisage any process that is destructive of the value of the ore.
Processing raw material in its normal procedure would be akin to
an activity that would entail value addition and not a process that is
destructive of its value. The process which effectively lowers the
value of the ore, and which forms an integral part of the
manufacturing process, is akin to consumption; royalty would thus
be payable prior to such consumption.
37. In our view, Rule 39(1) as it existed prior to 10.04.2026 must
be read purposively bearing in mind the object of the Rule.
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38. In M/s. Mideast Integrated Steel Limited and another
( Supra ), the Orissa High Court interpreted Rule 64B and Rule 64D
of the Mineral Concession Rules, 1960 [ the MCR ]. It is material to
note that Rule 64B of the MCR as was in force at the material time
is similarly worded. Section 64B of the MCR as was in force at the
material time is reproduced below:
"Rule 64B. Charging of royalty in case of
minerals subjected to processing
(1) In case processing of run-of-mine is carried out
within the leased area, then, royalty shall be
chargeable on the processed mineral removed
from the leased area.
(2) In case run-of-mine mineral is removed from
the leased area to a processing plant which is
located outside the leased area, then, royalty shall
be chargeable on the unprocessed run-of-mine
mineral and not on the processed product."
39. In the said case, the petitioner was engaged in the
manufacture of steel, pig iron and sponge iron at its plant in Odisha.
It carried on the process of crushing iron ore Lumps partly into
Fines, the value of which was lower than that of the iron ore Lumps.
Since royalty was paid on an ad valorem basis, this would result in
a loss to the exchequer if it was calculated on the basis of the value
of Fines, as in the present case. Therefore, the State of Odisha
decided to charge royalty on Lumps, which the petitioner would
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have paid, had it not processed the Lumps in the crushing plant
inside the leased area. The petitioner challenged the same before
the Division Bench of the Orissa High Court.
40. The Court held that it was further processing and not the
processing envisaged by Rule 64B of the Mineral Concession
Rules. The relevant extract of the said decision is set out below:
"25.
25.2. ………………………….. He submitted that
even if the method and processes adopted by the
petitioner in crushing iron ore lumps did not
amount to beneficiation, it certainly was further
processing and not the processing envisaged by
Rule 64-B of the MC Rules.
25.3 That argument has to be accepted in view of
the composite scheme of levying royalty on iron
ore. While Section 9 of the MMDR Act obliges the
holder of a mining lease to pay royalty in respect of
any mineral removed or consumed, the rate at
which royalty has to be paid Is specified in the
Second Schedule. The Second Schedule classifies
iron ore into three forms, viz. lumps, fines and
concentrates. Rule 64-B of the MC Rules provides
for charging of royalty on the processed mineral
removed from the leased area. The processing
envisaged in Rule 64-B could be the processing of
iron ore by which it is brought into any of the three
forms for which royalty is payable under Section 9
of the MMDR Act; and the manner of computation
and payment of royalty as provided in Rule 64-D
requires as the basis the mineral produced. A
conjoint reading of these relevant provisions for
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levy of royalty cannot accommodate further
processing of the iron ore in any of three forms.
25.4 Rule 64-B and Rule 64-D of MC Rules have
to be harmoniously read with Section 9 of the
MMDR Act so as not to allow any particular form of
iron ore to escape royalty at the prescribed rate by
its conversion into another form i.e. from lumps to
fines. Charging and computation of royalty on
these lines will not be inconsistent with the basic
premise that royalty is payable on mineral removed
or consumed from the leased area, because
ultimately the iron ore in the form of lumps and
fines would be removed from the leased area after
royalty being computed on the basis of the mineral
produced in the leased area. In other words, when
the mineral is already produced in the form in
which it is classified in Entry-22 and the royalty
could be computed as prescribed, it's actual levy
may have to await till the mineral leaves the
boundary of the leased area. But, any change in
the form of that mineral by any further process has
to be ignored for computation of the amount of
royalty."
41. Clearly, Rule 39(1) does not contemplate a process which
reduces the value of the mineral after it has been extracted in a
form on which royalty is payable.
42. In the present case, as noticed above, Rule 39(1) of the Rules
has since been amended to introduce a proviso that explicitly
provides that, in the event any process reduces the value of the
processed mineral, royalty would be payable on the basis of Lumps
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and Fines after the initial screening. In our view, the proviso to Rule
39(1) is clarificatory as Rule 39(1) did not contemplate a process
that reduces the economic value of the mineral.
43. The learned Senior Counsel appearing for MSPL did not
dispute that under amended Rule 39(1) of the Rules as in force
from 10.04.2026, MSPL would be liable to pay royalty on the basis
of Lumps and Fines as separated by initial screening and prior to
the Lumps being subjected to any crushing process. He submitted
that the dispute is only confined to the stockpile of Fines that are
remaining at the leased area. He contended that MSPL was entitled
to remove the stockpile of Fines on the basis of Rule 39(1) of the
Rules as was in force prior to 10.04.2026.
44. In view of the above, we reject MSPL’s contention that its
liability to pay royalty would be confined to royalty payable on Fines
and not on Lumps, notwithstanding that the process of crushing
carried out in the leased area resulted in reducing the economic
value of the mineral.
45. Having stated the above, we must also add that the aforesaid
issue is academic in the given facts. Concededly, royalty is payable
on dispatch or consumption. The royalty payable under Rule 39(1)
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of the Rules is to be determined at the time of dispatch. Since Rule
39(1) of the Rules stands amended with effect from 10.04.2026,
MSPL would be liable to pay royalty on the stockpile of processed
ROM on the basis of the amended Rule 39(1) as the said mineral
has not been dispatched from the said leased area as yet.
46. It was, thus, contended on behalf of MSPL that this Court
should pass an order permitting MSPL it to remove the iron ore
Fines on the basis of the pre-amended Rules, on the ground that it
had been prevented from doing so. This contention is also
unpersuasive as MSPL had secured an interim order in its favour
dated 04.05.2023, wherein the operation and execution of the
impugned order was stayed. Thus, there was no impediment to
MSPL in removing the Fines.
47. Mr. Harish, the learned Government Advocate, had also
pointed out that there was no communication issued after the
impugned order which prevented MSPL from carrying on its
activities or from dispatching the iron ore Fines.
48. In any view of the matter, we are not persuaded to accept that
in the given facts any order is required to be issued contrary to the
applicable Rules.
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49. As there is no dispute that the impugned order is not
sustainable, we are setting aside the same. The present petition is
thus allowed, albeit with the aforesaid observations.
Sd/-
(VIBHU BAKHRU)
CHIEF JUSTICE
Sd/-
(K.S. HEMALEKHA)
JUDGE
SD