New Delhi, July 25 (Representative) A nine-judge constitutional bench of the Supreme Court on Thursday held by an 8:1 majority that States have the power to levy royalty on mineral-bearing land and that the Union law – Mines and Minerals (Development and Regulation) Act 1957 – does not limit their power to do so. The decision may benefit mineral-rich states like Jharkhand, Odisha, West Bengal, Chhattisgarh and Madhya Pradesh.The Bench comprising Chief Justice of India DY Chandrachud, Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and AG Masih pronounced the judgment on the main issue whether royalties on mining leases be considered as tax and whether the States have the power to levy royalty/tax on mineral-bearing lands or mineral rights after the enactment of the Parliamentary law, MMDR Act 1957.Chief Justice of India DY Chandrachud wrote the judgment on behalf of himself and seven other judges.Justice BV Nagarathna delivered a dissenting judgment. The conclusion of the Majority judgement pronounced by the CJI is that the royalty is not within the nature of tax as it is a contractual consideration paid by the lessee under the mining lease.Both royalty and deed rent do not fulfil the characteristics of tax, said the court overruling the judgment in India Cements case that held royalty to be a tax. The CJI said that Entry 54 of List 1 (Union list) is a regulatory entry. Regulatory entries are distinct from taxing entries. Entry 54 of List 1, being a general entry, does not include the power of taxation of the Union. Legislative power to levy tax on mineral rights vests with the States. The CJI further ruled that there is no specific provision in the MMDR Act imposing limitations on the taxing powers of the State. Royalty under S.9 of the MMDR Act is not in the nature of a tax. The expression “land” in Entry 49 of List 2 covers all sorts of land. Mineral-bearing lands also fall under the description of “land” under this Entry in the State list and hence States are competent to tax them.
And the State legislatures have legislative competence to tax land containing minerals, the CJI said.The CJI said that the yield of mineral-bearing land can be used as a measure to tax the lands. Mineral value or mineral produce can be used as a measure to levy tax on mineral-bearing lands. On the other hand, Justice Nagarthna in her dissenting judgment held that the royalty is in the nature of a tax.Hence, the provisions of the MMDR Act regarding the levy of royalty denude the States of their power to levy taxes on minerals.Justice Nagarathna held that “land” under Entry 49, List 2 will not include “mineral bearing lands” as it would amount to double taxation on mineral rights. It would be impermissible to hold that the States have power to levy tax over and above the royalties paid by the lease-holder of the mining lease.She held that allowing the States to levy taxes on minerals would lead to a lack of uniformity on a national resource. This could also lead to unhealthy competition among the States. This may result in the breakdown of the federal system. The nine-judge bench was constituted on July 25 to look into the case – Mineral Area Development Authority etc Vs Steel Authority of India and others. The brief facts of the matter are that for many years mine operators and regulators have been trying to settle the question of whether a royalty amount paid by the operators to the Union government is a form of tax or not. All mine operators, under the Mines and Mineral (Development and Regulation Act, 1957), are required to pay a “royalty to the Union government” for the right to use, explore and evaluate the minerals.In 1990, a seven-judge bench of the Supreme Court in India Cement Ltd & others versus State of Tamil Nadu first decided that this royalty was a tax as it was “directly or indirectly” proportional to how much mineral had been extracted after the sale by the lessee. Fourteen years later, a five-judge bench in 2004 ruled the opposite — that royalty on mineral rights was not a tax but an expenditure incurred by the lessee towards the owner of the land who may be a private person or the State.
In 2011, the Court recognised these opposing streams of jurisprudence and referred the case to a nine-judge bench. After the introduction of the Goods and Services Tax regime, the stakes have become higher. If the royalty is not deemed a tax, mine operators will have to pay GST on all mineral extractions, adding significant costs at source. The nine-judge bench headed by Chief Justice Chandrachud heard the matter over eight days while dealing with a batch of 86 appeals filed by different state governments, mining companies and public sector undertakings. The bench heard the arguments of various parties including the Centre. During the hearing, the top court said the Constitution vests the power to impose tax on mineral rights not only in Parliament alone but also in the States and underlined that such authority should not be diluted. Attorney General R Venkataramani, appearing for the Centre, had contended the Union had overriding powers about tax mines and minerals. Solicitor General Tushar Mehta, also representing the Centre, said the entire architecture of the Mines and Minerals (Development and Regulation) Act is the limitation on the state’s legislative power to impose tax on minerals and, under the law, the Central government has the power to fix royalty.Senior advocate Rakesh Dwivedi, appearing for Jharkhand, had submitted that royalty is not tax and states have the power to levy taxes on mines and minerals based on Entries 49 and 50 of the State List. While Rakesh Dwivedi defended the States’ right to impose tax on land and mineral activity during the eight-day hearing, a battery of senior advocates including Harish Salve, Abhishek Singhvi, Arvind Dattar, AK Ganguly, Darius Khambata, Additional Solicitor General Aishwarya Bhati and SK Bagaria contested his contentions.