Royalty on mineral rights not tax, rules Supreme Court in big win for states

Mangalore Today News Network

New delhi, July 25, 2024: The Supreme Court on Thursday, in a landmark judgment, revoked its earlier order and upheld the rights of states to impose royalty on mining and mineral-use activities. In an 8:1 verdict, the bench led by Chief Justice of India DY Chandrachud, ruled that ’royalty’ is not the same as ’tax’ and said that states have the competence and power to impose royalty. Justice BV Nagarathna delivered the dissenting verdict.

The verdict is a big win for the mineral-rich states such as Odisha, Bengal, Jharkhand and Chhattisgarh, among others.

"Royalty is not in the nature of tax...We conclude that the observation in India Cements judgment stating that royalty is tax is incorrect. Payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears," Chief Justice said.

"We hold that state legislature is competent while designing a levy under entry 49 of list 2 to tax lands which comprises of mines and quarries," he added.

The majority of the judges on the bench held that states are not stripped of powers to impose cesses on mining or related activities.

"The legislative power to tax mineral rights lies with the State legislature and the Parliament does not have the legislative competence to tax mineral rights...since it is a general entry and Parliament cannot use its residuary power regarding this subject matter...State legislature has the legislative competence under Article 246 read with Entry 49 of List 2 to tax mineral bearing lands," the majority ruled.

Justice Nagarathna disagreed on both aspects.

"I hold royalty is in nature of the tax. States have no legislative competence to impose any tax or fee on mineral rights...I hold India Cements decision was correctly decided," she said.

During today’s hearing, the central governent argued that states cannot impose taxes on mineral-bearing lands and that royalties levied by the Centre eventually go to them only.

"The development of mineral industry needs uniformity at a national level, failing which fragmented state-wise levy will adversely impact the development of mineral and systemic utilisation of minerals in larger public interest," Solicitor General Tushar Mehta had argued.

The matter was the oldest pending nine-judge bench case before the top court, and it had reserved its judgment in the case on March 14.

The case involves whether state governments are denuded of powers to tax and regulate activities concerning mines and minerals owing to the enactment of the MMDRA (Mines and Minerals (Development & Regulation) Act (Mines Act)).

In 1989, the Supreme Court held in the case of India Cements vs Tamil Nadu that royalty is a form of ’tax’ under the MMDRA and that the imposition of cesses on such royalty was beyond the states’ legislative competence.

After today’s hearing, several petitioners urged the Supreme Court to clarify that the verdict is prospective and won’t affect past transactions. To this, the bench, agreed to keep the case on July 31 to provide a clarification on the matter.

Recently, former Odisha Chief Minister Naveen Patnaik said that the demand for revision of coal royalty, which was rejected by the Centre, would lead to states losing thousands of crores of revenue every year.