The Karnataka High Court set aside a royalty demand against cement major ACC Limited, holding that the State cannot assess royalty on limestone using a “notional conversion factor” where the company’s actual weighment data is credible and unrebutted, and where a technical body had physically verified the consumption.
Bengaluru: The Karnataka High Court has quashed a demand notice raised against ACC Limited, the cement manufacturer that is now part of the Adani group, for royalty on limestone mined at its Wadi works, holding that royalty is payable on the actual quantity of mineral extracted or consumed, and that the State cannot fall back on a “notional conversion factor” to inflate the assessment where the lessee’s reported consumption is supported by credible weighment data that has not been meaningfully challenged [ACC Limited v. Union of India and Others].
A Division Bench of Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha allowed the company’s petitions, set aside the demand notice, and dismissed a connected challenge by the State of Karnataka, while issuing a series of consequential directions in the company’s favour.
The dispute: actual consumption versus a notional norm
The controversy concerned how royalty on limestone, the principal raw material for cement, is to be computed. Royalty under the mining law is payable on the quantum of mineral actually removed or consumed. The State’s authorities, however, sought to assess the company’s liability by applying a “notional conversion factor,” a standardised ratio of limestone consumed per tonne of cement or clinker produced, rather than accepting the company’s own recorded consumption figures, and raised a demand accordingly. The company challenged that demand, alongside a grievance that the State had blocked its access to the Integrated Lease Management System (ILMS) portal for its mining lease.
The heart of the legal question was therefore the circumstances in which the State may substitute a notional norm for a lessee’s actual, recorded consumption in assessing royalty.
A notional factor is a fallback, not the default
Drawing on a line of authority, including the Madhya Pradesh High Court’s decision in Grasim Industries Limited v. State of M.P., the Court explained the limited role a notional conversion factor may play. It accepted that the State is entitled to assess consumption on the basis of a norm, but only in defined circumstances: where there is “a credible challenge to the quantum of actual consumption as reported,” or where “the lessee cannot substantiate the quantum of mineral as consumed.”
The governing principle, the Court reiterated, is that royalty is relatable to the minerals actually extracted, and a notional factor cannot be used to demand royalty on minerals that were never removed. Where a lessee is able to satisfy the assessing authority that its actual consumption is below the notional figure, “the question of invoking the notional conversion factor will not arise nor can be countenanced.” The notional factor, in other words, is a rebuttable device to be deployed where the reported figures are not credible, not a licence to disregard reliable actual data.
The Court noted the further caution in Grasim that any resort to a uniform notional factor “must meet the test of necessity,” arising from a genuine rejection of the assessee’s claim and returns, so that applying it remains a matter of the mode of assessment where the actual figures cannot be trusted, and no more.
Why the State’s demand could not stand
Applying those principles, the Court found the State’s demand unsustainable on the facts. Crucially, it held, there was “no credible challenge to the accuracy of the weighment data,” and no material to establish that the quantity of cement the company had produced could not possibly have been produced from the limestone consumption it had reported. On the contrary, a team from the National Council for Cement and Building Materials (NCCB), a technical body, had physically verified the consumption at the company’s plant and submitted a report on an empirical basis, which, the Court held, “the State could not simply reject.”
The Court added that the State was also not entitled to disregard an earlier revisional order that had required the question of royalty to be considered on the basis of the agreed minutes of a 2012 meeting. Finding no infirmity in the Revisional Authority’s decision allowing the company’s revision and holding that the adoption of the norm was not justified, the Court concluded that the demand could not be sustained.
The directions
Allowing the company’s petitions and dismissing the State’s challenge, the Court issued a set of consequential directions: it set aside the impugned demand notice; directed the State and the Department of Mines and Geology to grant full access to the ILMS portal and not to block it; directed the authorities to execute a supplementary lease deed in the company’s favour without insisting on a no-dues certificate; and ordered the State to refund the amount the company had deposited pursuant to an earlier interim order. The State’s own writ petition challenging the revisional order was dismissed.
Why the judgment matters
The decision is a useful reaffirmation of a core principle of mineral royalty law: that the levy is tied to what is actually extracted or consumed, and not to a formula applied for administrative convenience. For the mining and cement sectors, where royalty on limestone is a significant cost, the ruling draws a clear line: a State may bring a scientifically-determined norm to bear only where it has a genuine, credible basis to doubt the lessee’s reported figures, or where the lessee cannot substantiate them, and not as a default that overrides reliable, verified consumption data. Where actual weighment records exist and independent technical verification supports them, those figures must prevail.
The judgment also underscores the weight courts attach to empirical, technical verification by a specialised body over a State’s unsupported recourse to a standardised ratio, and reinforces that assessing authorities cannot sidestep binding revisional orders. For lessees, the decision offers a measure of protection against inflated royalty demands built on notional assumptions rather than measured reality; for the State, it is a reminder that the power to apply a norm is a conditional fallback, exercisable only on a proper, evidenced foundation. The demand having been set aside and the consequential reliefs granted, the company’s assessment must proceed on the basis of its actual, verified consumption.
Case Title: ACC Limited v. Union of India and Others [W.P. No. 25298 of 2024 c/w W.P. No. 18655 of 2025 and W.P. No. 36850 of 2025]
Bench: Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha
Court: High Court of Karnataka at Bengaluru
Date of Judgment: September 8, 2026
