### Exclusion of Royalty and Statutory Contributions from Sale Value for ASP Calculation Upheld as Constitutional Key Takeaways for Legal Professionals: * Validity of Measure: The inclusion of royalty, DMF, and NMET in "sale value" for computing Average Sale Price (ASP) is a valid regulatory measure to prevent revenue evasion. * Nature vs. Measure: A clear distinction exists between the subject matter of a levy (royalty) and the standard by which it is measured; the legislature possesses broad discretion to design such measures. * Anti-Evasion Doctrine: Provisions loaded into the measure of a levy to counter price manipulation and under-invoicing are neither "manifestly arbitrary" nor *ultra vires* the parent Act. * No "Royalty on Royalty" Bar: Such computation does not violate the three-year cap on royalty rate revision under Section 9(3) of the MMDR Act, as the rate remains constant while only the base value is defined. * Economic Policy Deference: Courts will allow "free play in the joints" for the State to experiment with different pricing mechanisms (e.g., Coal vs. Iron Ore) based on market realities.

The petitioners, holders of mining leases for iron ore acquired through auctions post-2015, challenged the constitutional validity of the Explanations 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

These rules define "sale value" (used to calculate the Average Sale Price (ASP) for royalty purposes) to include payments made toward Royalty, District Mineral Foundation (DMF), and National Mineral Exploration Trust (NMET)

The petitioners argued this creates a "cascading effect" where they pay royalty on royalty

An earlier round of litigation (Writ Petition (C) No. 715 of 2024) noted that the Government was considering amending these rules to remove the "anomaly," but the Union ultimately decided against amendment to prevent significant revenue loss to States

The petitioners re-approached the Court following the Union’s final decision

1. Whether the Explanations to Rule 38 of the 2016 Rules and Rule 45(8)(a) of the 2017 Rules are ultra vires Section 9 of the MMDR Act and violative of Articles 14 and 19(1)(g) of the Constitution for including royalty, DMF, and NMET in the "sale value" used to compute royalty?

the principle that there is a presumption of constitutionality for both plenary and subordinate legislation State of Tamil Nadu v. P. Krishnamurthy

distinction between the "nature of a tax" (the subject matter) and the "measure of a tax" (the yardstick used for assessment), holding that the legislature possesses broad discretion to design the measure Mineral Area Development Authority v. SAIL and Union of India v. Bombay Tyre International Ltd.

doctrine that legislative entries under the Seventh Schedule must be liberally construed to include all subsidiary and ancillary matters, such as enactments to prevent tax evasion Sardar Baldev Singh v. CIT and Union of India v. A. Sanyasi Rao

"royalty" under Section 9 of the MMDR Act is a contractual consideration, and the Central Government has the power to prescribe the method of its computation under Entry 54, List I

While the petitioners claimed the "cascading effect" was an anomaly, the Union successfully demonstrated that the inclusion of royalty, DMF, and NMET in the "sale value" was a deliberate regulatory measure to counter price manipulation

The Union provided data showing that iron ore miners often under-reported ex-mine prices or manipulated despatch quantities to depress the ASP

The court found that using a "gross" sale value as the measure for royalty—even if it includes tax components—is a valid legislative choice to check evasion and ensure a fair value for the mineral

The court rejected the comparison with coal, noting that coal pricing is based on a transparent National Coal Index, whereas iron ore ASP depends on miner-submitted data, thus justifying different regulatory treatments

The rules are not ultra vires Section 9 of the MMDR Act because the legislature has the power to define the measure of a levy to prevent evasion

There is no violation of Article 14 as coal and iron ore are not "equals" in their pricing mechanisms

There is no violation of Article 19(1)(g) as the restriction is a reasonable regulatory measure in the interest of public revenue

The Court clarified that the three-year cap in Section 9(3) applies only to the rate of royalty, not to changes in the mathematical measure/ASP resulting from market data