A nine-judge Constitution Bench of the Supreme Court Today (Oct 4) rejected review petitions against its judgment which held that royalty paid by mining operators to the Central government is not a tax and that states have the power to levy cesses on mining and mineral-use activities. Justice Nagarathna dissented from the majority and issued notice on the review petitions.
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NEW DELHI: A nine-judge Constitution Bench of the Supreme Court dismissed review petitions challenging its earlier ruling, which affirmed that royalty payments made by mining operators to the Central government are not classified as a tax. The ruling also reinforced the states’ power to levy cesses on mining and mineral-use activities.
The Bench, led by Chief Justice of India (CJI) DY Chandrachud, included Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih.
The Court concluded that there was no error in its earlier judgment, stating,
“Having perused the review petitions, there is no error apparent on the face of the record. No case for review under Order XLVII Rule 1 of the Supreme Court Rules 2013 has been established.”
However, Justice BV Nagarathna dissented from the majority opinion. She issued notice on the review petitions and also agreed to a plea for an open court hearing on the matter. Justice Nagarathna had also dissented in the original judgment under review.
The Original Judgment on Royalties and Cesses
The Supreme Court’s earlier judgment held that royalty payments under the Mines and Minerals (Development & Regulation) Act (MMDR Act) do not constitute a tax, and the states retain their power to impose cesses on mining activities. This decision overruled the Court’s 1989 ruling in the case of India Cements Ltd vs. State of Tamil Nadu, which had classified royalty as a tax.
In the majority opinion, CJI Chandrachud clarified:
“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.”
Key Findings of the Majority Judgment
The Supreme Court upheld several important points in its ruling:
- States’ Plenary Right to Tax on Mineral Rights: The Court held that unless the Parliament specifically imposes a limitation, states have the plenary right to impose taxes on mineral rights.
- Parliament’s Limitations Through Statutory Instruments: Parliament can impose limitations on states’ taxing powers under Entry 50 of List 2 of the Constitution through statutory instruments. However, the provisions of the MMDR Act cannot be stretched to infringe upon the states’ taxing rights.
- Royalty is Not a Tax: Since royalty paid under Section 9 of the MMDR Act is not considered a tax on mineral rights, limitations on the enhancement of royalty are not equivalent to a tax under Entry 50. The limitations pertain to the Centre’s powers and do not affect the states’ right to tax.
- Mineral-Bearing Lands as “Land” under Entry 49: The Court explained that the term “land” under Entry 49 of List 2 includes all types of land, including mineral-bearing lands. Therefore, state legislatures are competent to levy taxes on lands that encompass mines and quarries.
Distinction Between Royalty and Tax
In its judgment, the Court highlighted the conceptual differences between royalty and tax:
- Nature of Payment: A royalty is charged by a proprietor as compensation for granting rights to minerals, while a tax is a sovereign imposition.
- Consideration for Action: Royalty is paid for the specific act of extracting minerals, while tax is levied on a taxable event defined by law.
- Legal Basis: A royalty can be foreclosed based on the lease agreement, whereas a tax is enforced by statutory law.
The Court’s ruling draws a clear distinction between the two, confirming that royalty payments for mining activities do not fall under the category of tax.
Dissenting Opinion by Justice Nagarathna
Justice BV Nagarathna, dissenting from the majority, expressed the need for further scrutiny.
She not only issued a notice on the review petitions but also permitted the plea for an open court hearing, indicating that the legal arguments surrounding royalty and cesses on mining merit a deeper examination.
This dissent reflects her earlier position in the original judgment, where she had also disagreed with the majority’s conclusions.
Conclusion
The Supreme Court’s decision reaffirms the states’ authority to levy taxes on mineral rights, distinct from royalty payments, which it ruled are not taxes.
While the majority of the Bench rejected the review petitions, the dissent by Justice Nagarathna ensures that the issue remains under judicial consideration.
The Court’s detailed interpretation of royalty versus tax clarifies the legal framework surrounding mining and mineral extraction activities in India.
Click Here to Read Previous Reports on Tax On Mineral Rights
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