Mining Royalty: Government To Take Final Call On The Cascading Impact Of Compounding
Mining companies told the top court that royalty which has already been paid in the previous month is again being factored in for the computation of royalty to be paid for the subsequent months.
The Supreme Court on Thursday gave the government two months to take a final decisive call in regard to the cascading impact of royalty compounding.
A quick primer for understanding this complex issue: As per section 9 of the Mines and Minerals (Development and Regulation) Act, 1957, revenue required to be paid for any mineral removed or consumed is paid to the government in the form of royalty.
In addition, the same section empowers the central government to enhance or reduce the rate of royalty payable by way of a notification once every three years.
In 2016, the government revamped the entire mechanism for the calculation of royalty on minerals and the grant of concessions.
The 2016 rules defines the term ‘sale value’ as the gross amount payable as per the sale invoice, where the sale transaction is on an arms’ length basis and such price is the sole consideration for the sale.
These rules provide that royalty in respect of any mineral is to be paid on an ad valorem basis, meaning in proportion to the estimated value of the concerned mineral. Royalty shall be calculated as a percentage of the average sale value.
The sale value of any graded mineral or concentrate for the purposes of these rules is the gross amount payable, as per the sale invoice, including the royalty component. This sale value after deducting the actual expenditure incurred would be the ex-mine price of such mineral or concentrate. Lastly, the weighted average of this ‘ex-mine price’ shall be the average sale price for calculating royalty.
Before the top court, mining companies contended that royalty which has already been paid in the previous month is again being factored in for the computation of royalty to be paid for the subsequent months, which is arbitrary.
The companies told the court that this anomaly has been cured for coal, but not for other minerals such as iron ore.
In response, the government told the court that a public consultation for this issue is already underway.
As a result, the court has refrained from commenting on the issue as of now and has directed the government to take a final call regarding this issue within the stipulated time of two months, that is, by Jan. 7, 2025.
