The Legal Framework for Royalty on Ordinary Earth in India: An Analytical Review

Introduction

The extraction and utilization of "ordinary earth" for construction and developmental activities have become a significant subject of legal scrutiny in India, particularly concerning the imposition of royalty. Ordinary earth, a seemingly ubiquitous material, has been brought within the ambit of mining regulations, leading to complex legal questions regarding its classification as a minor mineral, the authority to levy royalty, and the implications for various stakeholders, including construction companies, landowners, and governmental bodies. This article undertakes a comprehensive analysis of the legal framework governing royalty on ordinary earth in India, drawing upon key legislative provisions, landmark judicial pronouncements, and the evolving jurisprudence in this domain. The primary legislation governing this area is the Mines and Minerals (Development and Regulation) Act, 1957 (hereinafter "MMDR Act"), which, along with State-level rules, forms the bedrock of mineral administration in the country.

Defining "Ordinary Earth" as a Minor Mineral under Indian Law

The cornerstone for levying royalty on ordinary earth lies in its classification as a "minor mineral." Section 3(e) of the MMDR Act defines "minor minerals" as building stones, gravel, ordinary clay, ordinary sand (other than sand used for prescribed purposes), and "any other mineral which the Central Government may, by notification in the Official Gazette, declare to be a minor mineral."

Exercising this power, the Central Government issued a pivotal notification on February 3, 2000 (S.O. 147(E)), declaring "ordinary earth used for filling or levelling purposes in construction of embankment, roads, railways, building" as a minor mineral (National Highways Authority Of India v. Itd Cementation India Limited, 2015 SCC 14 21; M/S. J.K Construction Engineers And Contractor & Ors. v. Union Of India & Ors., Allahabad High Court, 2006). The constitutional validity and scope of this notification, and the interpretation of "ordinary earth" as a mineral, were extensively examined by the Supreme Court in Som Datt Builders Limited v. Union Of India And Others (2010 SCC 1 311). The Court upheld the Allahabad High Court's decision, affirming that "ordinary earth" falls within the definition of "any other mineral" under Section 3(e) of the MMDR Act. It emphasized a contextual interpretation of the term "mineral," stating that it cannot be rigidly confined to scientific or dictionary definitions and that its meaning depends on the context in which it is used. The Court reasoned that if "ordinary clay" and "ordinary sand" are recognized as minor minerals, "ordinary earth" used for similar purposes naturally extends to this category (Som Datt Builders Limited v. Union Of India And Others, 2010 SCC 1 311). This aligns with earlier rulings like Banarsi Dass Chadha and Bros. v. Lt. Governor, Delhi Admn. (1978), which asserted that "mineral" is a term of common parlance with varied meanings based on context, and Bhagwan Dass v. State of U.P (1976), which clarified that minerals need not be subterranean and can include surface deposits (cited in Som Datt Builders).

Legislative Competence for Royalty Imposition

The power to regulate mines and mineral development is divided between the Union and State governments under the Constitution of India. Entry 54 of List I (Union List) gives Parliament the power to legislate on the regulation of mines and mineral development to the extent declared by Parliament by law to be expedient in the public interest. The MMDR Act, 1957, is the law enacted under this entry. Entry 23 of List II (State List) gives State Legislatures the power to legislate on the regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union.

The Role of the Central Government

As discussed, the Central Government's primary role concerning minor minerals like ordinary earth is to declare them as such under Section 3(e) of the MMDR Act. This declaration brings the specified mineral within the regulatory framework for minor minerals.

The Role of State Governments

Once a substance is declared a minor mineral, Section 15(1) of the MMDR Act empowers State Governments to make rules for regulating the grant of quarry leases, mining leases, or other mineral concessions in respect of minor minerals and for purposes connected therewith. Crucially, Section 15(1)(g) (as noted in G.H. Vijapura & Co. v. State Of Assam, Gauhati High Court, 2014) allows State Governments to frame rules for "fixing and collection of rent, royalty, fees, dead rent, fines or other charges and the time within which and the manner in which these shall be leviable and payable."

The Supreme Court in D.K Trivedi & Sons And Others v. State Of Gujarat And Others (1986 SUPP SCC 1 20) affirmed the State Government's authority under Section 15(1) to make rules for charging dead rent and royalty, including enhancing their rates for minor minerals. The Court held that the term "regulating" encompasses setting financial obligations. However, it also noted the substantive restriction, such as that found in Section 15(3) of the MMDR Act (at the time of the judgment, interpreted as prohibiting enhancement of rates more than once in any four-year period), which protects lessees from arbitrary financial burdens. The Allahabad High Court in M/S. J.K Construction Engineers And Contractor & Ors. v. Union Of India & Ors. (Allahabad High Court, 2006) also affirmed that State rules for minor minerals are framed under Section 15 of the MMDR Act as a delegatee of the Union, not under Entry 23 of List II directly for this purpose.

The scope of State rule-making power under Section 15 was clarified in State Of T.N v. M.P.P Kavery Chetty (1995 SCC 2 402), where the Supreme Court held that while States can regulate the granting of mining leases, their power does not extend to regulating the sale and pricing of quarried minerals post-extraction if not covered by the Act.

Judicial Interpretation of Royalty on Ordinary Earth

Courts across India have played a vital role in interpreting the provisions related to royalty on ordinary earth, addressing various challenges and clarifying ambiguities.

Affirmation of "Ordinary Earth" as a Minor Mineral

The judgment in Som Datt Builders Limited v. Union Of India And Others (2010 SCC 1 311) remains the locus classicus, firmly establishing that ordinary earth used for specified construction purposes is a minor mineral and validating the Central Government's notification. This has provided regulatory clarity and affirmed the government's authority to classify such materials (Som Datt Builders, Impact section).

The Criticality of "End-Use"

A significant principle emerging from judicial decisions is the "end-use" or "purpose" test. The liability to pay royalty often hinges on the specific purpose for which ordinary earth is excavated and used. In Galib And Others v. State Of U P And Others (Allahabad High Court, 2018), the court, referencing Promotive Industrial & Investment Corporation of U.P. Ltd. v. State of U.P. and Noida City (P) Ltd. Thru. Authorized Signatory Vs. State of U.P. and Others., emphasized that the purpose of the operation (winning any minor mineral) is significant. The Bombay High Court in BGR Energy System Ltd., Khaparkheda Vs. Tehsildar, Saoner and Others (cited in Galib And Others) reiterated that it is the end use of ordinary earth (e.g., for filling or levelling in construction) that determines its liability for royalty under the Central Government's notification dated 03.02.2000.

Distinction from Other Minerals and Necessity of Specific State Rules

Courts have highlighted the distinction between "ordinary earth" (as defined in the 2000 Central notification) and other categories like "ordinary clay" or "brick earth." The Jharkhand High Court in Raus-Scl (Jv) v. East Central Railways (Jharkhand High Court, 2015) explicitly stated that "Ordinary Clay" (e.g., for manufacturing Raniganj tiles) is different from "ordinary earth used for filling or leveling purposes in construction." The court held that the State of Jharkhand could not realize royalty for "ordinary earth" without amending its Second Schedule to the Jharkhand Minor Mineral Concession Rules, 2004, and prescribing a specific rate of royalty for it, distinct from ordinary clay. The mere declaration by the Central Government is insufficient; the State must incorporate it into its rules and fix a rate (Raus-Scl (Jv)).

Similarly, the Patna High Court in Hindustan Steel Works Construction Ltd. v. Girish Chandra Singh & Ors. (Patna High Court, 2007) noted that once a thing falls within the definition of a minor mineral via Central notification, the State Government is empowered under Section 15 to make rules. This implies a subsequent affirmative step by the State. The Allahabad High Court in M/S. J.K Construction Engineers And Contractor & Ors. (Allahabad High Court, 2006) noted that the Government of Uttar Pradesh had consequently amended its Concession Rules to provide a royalty rate for ordinary earth after the Central notification.

Challenges to the Levy and Judicial Responses

The imposition of royalty on ordinary earth has faced numerous challenges. In M/S. J.K Construction Engineers And Contractor & Ors. (Allahabad High Court, 2006), petitioners argued that ordinary earth is not a minor mineral, that landowners paying land revenue should not be subjected to royalty for using earth from their fields, and that it would lead to double taxation and hardship, violating Articles 39(a) and 21 of the Constitution. The Court, however, upheld the State's competence, reasoning that royalty is not a tax (thus Article 265 is not directly applicable in the same manner) and that the levy did not impose unreasonable restrictions. It also stated that hardship cannot be a ground to challenge a statute if it's otherwise valid. Challenges to the Central Government's notification dated 03.02.2000 itself were noted in cases like Utkal Highways v. Union Of India (Bombay High Court, 2017) and M/S SHRI RADHA KRISHNA ENGICONS & ANOTHER v. THE UNION OF INDIA & 3 OTHERS (Bombay High Court, 2017), where interim orders were passed regarding royalty collection, often distinguishing between extraction before and after the notification date.

Effective Date of Liability and Contractual Implications

The timing of notifications is crucial. In National Highways Authority Of India v. Itd Cementation India Limited (2015 SCC 14 21), the Supreme Court considered a claim for refund of royalty on ordinary earth. The Arbitral Tribunal had found that any levy prior to the Central Government's Notification dated 03.02.2000 was without legal sanction, and liability was validly created only after this notification (and subsequent State action). Contractual clauses often make contractors liable for royalty payments. For instance, in G.H Vijapura And Co. And Anr. v. State Of Assam And Ors. (Gauhati High Court, 2014), the respondents referred to General Conditions of Contract making the contractor responsible for depositing royalty for materials utilized.

Key Considerations and Procedural Aspects

Several key considerations arise from the legal framework and judicial precedents concerning royalty on ordinary earth.

The Imperative of State Government Notifications

It is firmly established that following the Central Government's declaration of ordinary earth as a minor mineral, State Governments must amend their respective Minor Mineral Concession Rules to specifically include ordinary earth (as defined for filling/levelling purposes) and prescribe a rate of royalty for it. Without such specific inclusion and rate fixation in the State rules, the State machinery may not be empowered to levy and collect royalty (Raus-Scl (Jv) v. East Central Railways, Jharkhand High Court, 2015). For example, the Gauhati High Court in G.H. Vijapura & Co. v. State Of Assam (Gauhati High Court, 2014) noted that the Assam Government amended its rules in 2005 to specify "Earth" and its royalty rate.

Scope of "Ordinary Earth" Subject to Royalty

The Central Government's notification of 03.02.2000 specifically targets "ordinary earth used for filling or levelling purposes in construction of embankment, roads, railways, building." This "end-use" criterion is paramount. Arguments have been raised, as seen in M/S. Evergreen Construction (Durgapur) Pvt. Limited v. The State Of Jharkhand (Jharkhand High Court, 2015), that if ordinary earth is not used for commercial purposes or for the specific purposes mentioned (e.g., if used by a railway from its own land for its own non-commercial work), royalty may not be leviable. However, the broad interpretation in Som Datt Builders suggests that use in large-scale construction, even if for public projects, would likely attract royalty if the State rules are in place.

Royalty v. Tax

The nature of royalty has been debated. The Allahabad High Court in M/S. J.K Construction Engineers And Contractor & Ors. (Allahabad High Court, 2006), referencing legal dictionaries and precedents, concluded that royalty is primarily a share of the produce or compensation for permitting exploitation, rather than a tax in the strict sense that would attract the rigours of Article 265 of the Constitution (no tax shall be levied or collected except by authority of law). This distinction is crucial in addressing challenges to the levy.

Ownership of Land and Mineral Rights

Arguments concerning the rights of landowners (e.g., Bhumidhars in Uttar Pradesh) to use earth from their land without paying royalty were raised in M/S. J.K Construction Engineers And Contractor & Ors. (Allahabad High Court, 2006). However, the prevailing legal position is that the State has rights over minerals, and the MMDR Act and State rules govern their extraction and associated levies, irrespective of surface land ownership, once the material is classified as a mineral and used for specified purposes.

Conclusion

The legal regime governing royalty on ordinary earth in India has evolved significantly, primarily driven by the Central Government's 2000 notification and its subsequent interpretation by the judiciary. The Supreme Court's decision in Som Datt Builders conclusively settled that ordinary earth used for specified construction activities is a minor mineral subject to royalty. However, the operationalization of this levy is contingent upon State Governments duly amending their Minor Mineral Concession Rules to include ordinary earth and prescribe specific royalty rates, distinct from other minerals like ordinary clay. The "end-use" principle remains a critical determinant of liability.

While the State's power to levy royalty on this resource is well-established, procedural compliance by State authorities and clarity on the scope of "commercial purpose" continue to be areas of potential dispute. Stakeholders in the construction and infrastructure sectors must remain cognizant of these legal requirements, ensuring compliance with both Central and State regulations to avoid legal impediments and financial liabilities. The jurisprudence underscores a balance between the State's sovereign right to benefit from mineral resources and the need for a clear, predictable, and fair regulatory environment for their exploitation.