SC says states have right to impose taxes on mineral extraction

SC holds Royalty on minerals not tax

A nine judge Constitution bench of the Supreme Court by a majority  on July 25 held that the royalty payable on minerals under the Mines and Minerals (Development and Regulation) Act, 1957 is not a tax.

The SC bench said states have the power to impose tax and levies such as cess on land in which the mineral is extracted from.

Court held on on July 25 that royalty is a contractual consideration by a lessor for mineral rights. However, royalties are payments a user makes to the owner of an intellectual property.

Justice Nagarathna was the sole judge in the nine judge bench to dissent with eight other judges. She held that royalty is not a tax and states did not have the competence to levy tax on land from which minerals are extracted.

After the judgment was pronounced, one section of lawyer urged the court to make the judgment applicable prospectively while the others asked the court to make the judgement applicable retrospectively.

The court, on hearing these lawyers for a while, decided to hear the case on the applicability of the judgment on July 31.

A nine-judge Constitution bench headed by Chief Justice DY Chandrachud, which reserved its verdict on March 14 after hearing a batch of 86 appeals filed by different state governments, mining companies and public sector undertakings for eight days, pronounced the verdict.

During the hearing, the top court had said the Constitution vests the power to impose tax on mineral rights not in Parliament alone but also 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 with regard to taxing mines and minerals.

Solicitor General Tushar Mehta, also representing the Centre, said the entire architecture of the Mines and Minerals (Development and Regulation) Act (MMDRA) is the limitation on the states' legislative power to impose tax on minerals, and under the law, the central government has the power to fix royalty.

The issue arose after the 1989 verdict in the case of India Cements Limited's plea against Tamil Nadu by a seven-judge bench of the apex court which held that royalty was a tax.

However, a five-judge bench of the apex court ruled in 2004  that there was a typographical error in the 1989 verdict and that royalty was not a tax. The dispute was then referred to a larger nine-judge bench.

The top court heard a batch of 86 appeals filed by mining companies, public sector undertakings (PSUs) and state governments arising from conflicting verdicts passed by different high courts on the issue.