The Bench, led by Chief Justice of India DY Chandrachud and comprising Justices Hrishikesh Roy, Abhay S. Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, issued the ruling.
![[BREAKING] "States can Levy, Renew Demand for Tax on Mineral Rights Retrospectively From April 1, 2005": CJI Led 9-Judge Bench](https://i0.wp.com/lawchakra.in/wp-content/uploads/2024/07/Mineral-Royalty-Case.jpg?resize=820%2C429&ssl=1)
NEW DELHI: A nine-judge Bench of the Supreme Court ruled on Wednesday (14th Aug) that its July 25 decision, which empowers State Governments to tax mining and related activities, will have retrospective effect but will only apply to transactions occurring after April 1, 2005.
The Bench, led by Chief Justice of India DY Chandrachud and comprising Justices Hrishikesh Roy, Abhay S. Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, issued the ruling.
The Court stated,
“States are permitted to levy and renew tax demands, but such demands will not apply to transactions conducted before April 1, 2005.”
Furthermore, the Court determined that the payment of tax demands should be spread out in installments over a 12-year period beginning on April 1, 2026.
The Court also waived any interest and penalties on demands made on or before July 25, 2024.
Earlier, on 25th July, the Supreme Court, in a majority ruling by a nine-judge Bench, determined that the royalty, as outlined under Section 9 of the 1957 Act, “is not considered a tax.”
The judgment explained that while Parliament holds the authority to prevent states from taxing mineral rights under Entry 50 of List II (State List), the 1957 Act lacks a specific provision that limits the states’ power to tax mineral rights. Therefore, the Court stated that the framework of the MMDR Act cannot be interpreted in a way that restricts the states’ taxing authority under Entry 50 of List II.
Entry 50 of List II addresses “taxes on mineral rights, subject to any limitations imposed by Parliament by law concerning mineral development.” The ruling further clarified that states are authorized to tax lands containing quarries or mines under Entry 49 of List II, which pertains to “taxes on lands and buildings.”
Justice B.V. Nagarathna, in her dissenting opinion, expressed concern over the potential consequences of overturning the India Cement judgment, including the risk of undermining the federal system and creating unhealthy competition among states.
WHY WENT TO NINE-JUDGE BENCH?
The issue reached a nine-judge Bench due to conflicting judgments: the India Cement ruling of 1989, where a seven-judge Bench concluded that royalty was a tax, and the 2004 Kesoram Industries case, where a five-judge Bench held that royalty was not a tax. This discrepancy led to the matter being referred to the larger Bench.
Chief Justice of India DY Chandrachud, authoring the majority opinion, noted that
“Indian federalism is asymmetric, favoring a strong Central Government while still allowing robust State governments.” He emphasized that in a federal system, each federal unit should perform its constitutional functions independently. The Constitution, he argued, should be interpreted in a way that preserves the federal nature of the system, ensuring that State legislatures are not subordinated to the Union in areas exclusively reserved for them.
The majority ruling affirmed that the listing of taxes on mineral rights in List II grants this authority to the states. It highlighted that the Court must respect the constitutional distribution of legislative powers. The ruling specified that Entry 50 in List II is limited only to the extent that Parliament imposes restrictions through laws related to mineral development. Without such limitations from Parliament, the states’ authority to impose taxes on mineral rights remains intact.
The ruling further clarified that since the royalty payable under Section 9 of the MMDR Act is not a tax on mineral rights, any limitations on increasing royalty rates do not constitute a tax under Entry 50 of List II.
The Court acknowledged that Parliament could entirely prohibit states from taxing mineral rights, noting that Entry 50 of List II explicitly includes the phrase “any limitations,” indicating that Parliament can impose extensive restrictions, including outright prohibition.
![[BREAKING] "States can Levy, Renew Demand for Tax on Mineral Rights Retrospectively From April 1, 2005": CJI Led 9-Judge Bench](https://i0.wp.com/lawchakra.in/wp-content/uploads/2024/07/image-36-2.png?resize=820%2C615&ssl=1)
In her dissent, Justice Nagarathna upheld the 1989 India Cement ruling, arguing that under the MMDR Act of 1957, royalty should be considered a tax or exaction. She also stated that Entry 49-List II does not apply to mineral-bearing lands.
Justice Nagarathna warned of the potential negative outcomes of allowing states to tax lands with mines, such as uncoordinated mineral development and increased competition among states. She suggested that this could lead to a “race to the bottom” in the national mineral market, causing economic instability and even incentivizing some states to import minerals, adversely affecting the country’s foreign exchange reserves.
She also raised concerns about the broader implications of overruling India Cement, which could result in states bypassing Entry 50-List II to avoid limitations imposed by Parliament, leading to legal uncertainty and adverse effects on mineral development in India.
CASE TITLE: Mineral Area Development Authority etc vs Steel Authority of India and ors
