India: Supreme Court upholds higher royalty on iron ore dispatches after statutory revision

• • Supreme Court clarifies applicability of revised royalty rates

• • Centre’s royalty hike from 10% to 15% triggers litigation

The Supreme Court has held that buyers of iron ore are liable to pay the royalty rate prevailing at the time of mineral dispatch, even if the auction was concluded and payments were made before a subsequent statutory increase in royalty.

A bench comprising Justices Sanjay Karol and N. Kotiswar Singh allowed the appeal filed by the Karnataka Directorate of Mines and Geology against BMM Ispat Ltd., overturning a Karnataka High Court judgment that had favoured the steelmaker.

The dispute stemmed from iron ore purchased by BMM Ispat through e-auctions conducted by the Monitoring Committee constituted by the Supreme Court following the mining ban in Karnataka. In June 2014, BMM Ispat successfully bid for iron ore lots and paid the applicable royalty at 10%, the prevailing rate at the time.

However, the Central Government revised iron ore royalty rates from 10% to 15% with effect from 1 September 2014 through an amendment to the Second Schedule of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act).

While BMM Ispat had completed payment before the amendment, a portion of the auctioned ore was lifted and transported after the revised royalty came into force. Following an audit objection, authorities deducted the differential 5% royalty amounting to over Rs 2 crore from the company’s security deposit.

The company challenged the deduction, arguing that the royalty applicable on the date of auction and payment should govern the transaction. The Karnataka High Court had accepted this argument, observing that imposing a higher royalty after acceptance of bids would be unjust.

Reversing the High Court’s decision, the Supreme Court held that royalty under Section 9 of the MMDR Act is linked to the removal or dispatch of minerals rather than the date of auction or contractual agreement.

The Court observed that a contractual arrangement cannot override a subsequent statutory amendment. It noted that royalty rates prescribed under the MMDR Act are statutory in nature and remain subject to revisions notified by the Central Government.

“The payment is to be made on the date of the movement of the minerals. If the date of movement is after the enhancement in royalty, a contract entered into prior to the statutory change cannot limit its impact,” the Court noted.

The bench further noted that the auction purchaser had the option to lift the material before the royalty revision came into effect but chose to transport the ore in phases or after the amendment date. Consequently, it could not avoid the liability arising from the increased royalty rate.

The judgment reinforces the principle that statutory levies applicable to mineral dispatches are determined by the law prevailing at the time of removal and not necessarily by the contractual terms agreed upon earlier.

Industry observers believe the ruling could serve as an important precedent for future disputes involving changes in mining royalties, duties, or other statutory levies occurring between the execution of mineral sale contracts and the actual dispatch of material.