The Cabinet Committee on Economic Affairs today approved the proposal for adoption of ad-valorem regime, in place of the present hybrid formula, for charging royalty on coal and lignite at the rate of 14% and 6% respectively, as per the recommendations of the Study Group, constituted by Ministry of Coal for revision of royalty rates on coal and lignite.

The Cabinet Committee on Economic Affairs today also approved the following:

a) introduction of an ad-valorem royalty on coal @ 14% of price as reflected in the invoice excluding taxes, levies and other charges.

b) The proposed royalty revision not to be extended to the State of West Bengal unless the cesses imposed, are withdrawn. For States other than West Bengal that levy cess or other taxes specific coal bearing lands, the revision of royalty allowed shall be adjusted for the local cesses or such taxes so as to limit overall revenue to the ad-valorem royalty yield.

c) Introduction of an ad-valorem royalty on lignite @ 6%.

d) For the purpose of calculating the royalty for captive coal mines, the price of coal produced from captive coal mines shall mean the basic pithead price of Run of Mine (ROM) coal and lignite, as reflected in the invoices, excluding taxes, levies and other charges of Coal India Limited (CIL),

e) Neyveli Lignite Corporation Limited (NLC) and Singreni Collieries Company Limited (SCCL) for similar grades of coal/lignite in the mine nearest to the captive mines.

The implementation of above revised rates of royalty on coal and lignite would provide coal and lignite bearing States reasonable share of the income earned by mining, production and selling of these minerals. As per the estimates, the royalty revenue earning of major coal producing States viz. Jharkhand, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh, Tamilnadu, Orissa, Nagaland, Meghalaya, Maharashtra, Chhattisgarh, Assam and Arunachal Pradesh would increase on an average upto 17.31% for coal and 14.53% for lignite. The major coal producing States will now earn the revenue of about Rs.6980 crore in place of Rs.5950 crore, being earned at present at existing rates, resulting increased combined earning by more than Rs.1050 crore.

A Gazette Notification for amendment to the Second Schedule of the Mines and Minerals (Development and Regulation) Act, 1957 for revision in the rates of royalty on coal and lignite will be issued within a period of one month. Accordingly, all coal and lignite bearing States would start levying royalty on coal & lignite as per new rates from the date of publication of the Gazette Notification.

BACKGROUND

Section 9(3) of the Mines and Minerals (Regulation and Development) Act, 1957 (MMDR, Act, 1957) prevents the Central Government from enhancing the rates of royalty in respect of any minerals including coal more than once during any period of three years. The existing royalty rates had been notified by the Government on 01.08.2007 as per the recommendations of a Committee, constituted in 2005 by the Ministry of Coal for revision of royalty on coal and lignite which were based on the then recommendations of Economic Advisory Council (EAC) to the Prime Minister.

As the royalty rates on coal and lignite have not been revised since, 2007 the Government constituted a Study Group on 04.02.2010 for the same. Taking into consideration the submissions made by all stakeholders, the interests of the coal producing States, the consumers and the national economy as a whole, the Study Group concluded that this is the right time for switching over to a full-fledged ad-valorem regime of royalty on coal and lignite.

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