Royalty on lignite

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pooja (Querist)
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22 May 2012 A company is selling lignite to its customers and also charging transportation cost from them. and the transportation cost is inclusive in total rates agreed between the parties by a contract. both selling and buyer company are government companies.
then on what amount royalty will be levied??
inclusive of transportation cost or exclusive of transportation cost???

chaitanya cherukuri

chaitanya cherukuri (Expert)
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22 May 2012 the question is not clear. What is exactly is your question. From what perspective you want us to answer this question Income tax, Accounts, Law?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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22 July 2025 Great question! When it comes to royalty on lignite sales, especially involving government companies, the basis of royalty calculation depends on the contract terms and the applicable government rules.

Generally:
Royalty is levied on the value of lignite only, i.e., exclusive of transportation cost.

Transportation cost is typically considered a separate service and not included in the royalty base.

So, if the contract says the price is inclusive of transportation, then for royalty calculation, transportation charges should be excluded to arrive at the net value of lignite.

Why?
Royalty is charged on the mineral or commodity itself.

Transportation is a service and doesn't form part of the mineral’s sale price for royalty.

This is common in many state mineral royalty laws and industry practice.

Recommendation:
Verify the exact State government’s mining or royalty rules applicable to lignite.

Check the contract clause on pricing breakup.

If rules are silent, follow the principle of excluding transportation charges from royalty calculations.

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