The Supreme Court Today (March 14th) concluded hearings and reserved its judgment on the significant question of whether mineral royalties constitute a tax under the Mines and Minerals (Development and Regulation) Act, 1957. The nine-judge bench, led by CJI DY Chandrachud, deliberated on the matter over eight days.
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NEW DELHI: The Supreme Court Today concluded hearings and reserved its judgment on the significant and controversial matter of whether the royalty paid for minerals constitutes a tax under the Mines and Minerals (Development and Regulation) Act of 1957. This critical issue also involves the determination of whether the authority to impose such charges rests solely with the Central government or if state governments too possess the power to levy taxes on mineral-rich land within their jurisdictions.
The matter was deliberated over by a nine-judge bench, led by Chief Justice DY Chandrachud. The bench addressed the issue across eight days, engaging with a consolidated batch of 86 appeals. These appeals were brought forward by various state governments, mining entities, and public sector undertakings, each presenting their stance and legal arguments.
Included in this distinguished bench, aside from CJI DY Chandrachud, were Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih. The discussions involved comprehensive arguments from different parties, including representations from the Central government, highlighting the breadth and complexity of the legal and economic implications surrounding this issue.
During the proceedings, the Supreme Court emphasized that the Constitution doesn’t solely grant the authority to impose taxes on mineral rights to Parliament but also extends it to the states, stressing that such power should remain intact.
R Venkataramani, the Attorney General representing the Centre, argued that the Union possesses superior authority regarding taxing mines and minerals.
Solicitor General Tushar Mehta, also representing the Centre, asserted that the Mines and Minerals (Development and Regulation) Act (MMDRA) constrains the legislative power of states to tax minerals. He highlighted that according to the law, the central government holds the jurisdiction to determine royalty.
He stated,
“The MMDRA comprehensively occupies the regulatory and developmental domain concerning mines and minerals, including any governmental imposition related to them, thereby inherently limiting the competency of State legislatures to enforce additional levies beyond those stipulated by the MMDRA and its associated regulations.”
Senior advocate Rakesh Dwivedi, representing Jharkhand, one of the petitioners, countered that royalty should not be considered a tax and argued that states retain the authority to impose taxes on mines and minerals. He referred to Entry 49 of the State List, which empowers states to levy taxes on lands and buildings, and Entry 50, which allows states to impose taxes on mineral rights, subject to any restrictions imposed by Parliament through laws related to mineral development.
The nine-judge bench of the Supreme Court commenced hearings on February 27 to address the intricate issue, which arose due to conflicting decisions by two constitution benches on the matter.
Royalties represent payments made by the user party to the owner of intellectual or real property assets.
This case originates from a disagreement between India Cement Ltd and the Tamil Nadu government. India Cement, holding a mining lease in Tamil Nadu, paid royalties to the state government. Subsequently, the state government imposed a cess on India Cement, in addition to the royalty. India Cement challenged this in the Madras High Court, arguing that a cess on royalty constituted a tax on royalty, exceeding the state legislature’s authority.
The Tamil Nadu government contended that the cess was imposed as land revenue and on mineral rights, within its jurisdiction to levy.
In 1989, a seven-judge bench of the Supreme Court ruled in favor of India Cement. It declared that under the Mines and Minerals (Development and Regulation) Act (MMDRA), the primary authority for regulating mines and mineral development rested with the Centre. The judgment held that while states could collect royalties under the MMDRA, they couldn’t impose additional taxes on mining and mineral development.
The ruling stated,
“…royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature.”
However, in 2004, a five-judge constitution bench, adjudicating another dispute over cess imposition on land and mining activities between the state of West Bengal and Kesoram Industries Ltd, found a typographical error in the 1989 verdict. It clarified that royalty itself wasn’t a tax but rather, the phrase “royalty is a tax” should be understood as “cess on royalty is a tax.” The 1989 judgment, according to this bench, determined that royalty is not a tax.
With over 80 additional petitions filed in the Supreme Court over the years, and given that the India Cement case was handled by a seven-judge bench, the matter was referred to a nine-judge bench to ascertain whether royalty qualifies as a form of tax or if there was an error in the India Cement case judgment.
During the 8-day hearing, Rakesh Dwivedi defended the states’ right to levy taxes on land and mineral activity. Conversely, a group of senior advocates including Harish Salve, Abhishek Singhvi, Arvind Dattar, AK Ganguly, Darius Khambata, Additional Solicitor General Aishwarya Bhati, and SK Bagaria contested Dwivedi’s arguments. They asserted that only Parliament, under the MMDRA, holds the authority to impose taxes on minerals, leaving states devoid of any power to levy taxes on mines and minerals.
The court’s upcoming decision is awaited with significant anticipation due to its potential impact on the regulatory landscape of India’s mineral wealth and the respective powers of the central and state governments.
Click Here to Read Previous Reports on This Case
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