Today(on 25th July),The Supreme Court will deliver its verdict on Thursday regarding whether the royalty on minerals constitutes a tax under the Mines and Minerals (Development and Regulation) Act, 1957, and whether only the Centre or states also have the authority to levy such charges on mineral-bearing land.
Thank you for reading this post, don't forget to subscribe!
NEW DELHI: The Supreme Court of India is set to deliver a landmark verdict today(on 25th July), the contentious issue of whether royalty payments on minerals constitute a tax under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDRA), and whether such a tax can be levied solely by the central government or by state governments as well.
A nine-judge Constitution bench, led by Chief Justice DY Chandrachud, will pronounce its judgment. The bench, which also includes Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, reserved its decision on March 14 after eight days of hearings on 86 appeals filed by various state governments, mining companies, and public sector undertakings.
The verdict, scheduled for 10:30 a.m. today, follows a complex legal debate on the extent of legislative power held by both the central and state governments regarding the imposition of taxes and royalties on mineral resources.
During the hearings, the Supreme Court highlighted that the Constitution grants the power to impose taxes on mineral rights not only to Parliament but also to the states. The bench emphasized that this authority should not be undermined.
Attorney General R Venkataramani, representing the central government, argued that the Union government holds overriding powers when it comes to taxing mines and minerals.
Supporting this stance, Solicitor General Tushar Mehta stated-
“The structure of the Mines and Minerals (Development and Regulation) Act (MMDRA) restricts the states’ legislative authority to impose taxes on minerals, conferring the exclusive power to set royalty rates to the central government.”
He further explained-
“The MMDRA fully governs the field, offering a comprehensive code that addresses all aspects of ‘regulation’ and ‘development’ of mines and minerals, including any governmental exactions or impositions related to mines and minerals. This inherently restricts the state legislature’s authority to impose any additional levies beyond those specified in the MMDRA and its associated rules.”
On the other hand, senior advocate Rakesh Dwivedi, representing the state of Jharkhand, one of the petitioners, contended that royalty is not a tax. He maintained that states have the authority to levy taxes on mines and minerals based on Entries 49 and 50 of the State List.
According to Entry 49, states can impose taxes on lands and buildings, while Entry 50 allows states to levy taxes on mineral rights, subject to any limitations imposed by Parliament by law relating to mineral development.
The origins of this case trace back to a dispute between India Cement Ltd and the Tamil Nadu government. India Cement, which had secured a mining lease in Tamil Nadu, was paying royalty to the state government. However, the Tamil Nadu government later imposed a cess in addition to the royalty. India Cement challenged this measure in the Madras High Court, arguing that a cess on royalty equates to a tax on royalty, which is beyond the state’s legislative competence.
The Tamil Nadu government defended the cess, asserting that it was a form of land revenue and on mineral rights, which the state had the authority to impose.
Royalties are payments made by the user party to the owner of an intellectual property or real property asset. The dispute centers on whether such payments for mineral resources can be classified as a tax and whether both state and central governments have concurrent powers to impose these levies.
The nine-judge bench began examining this intricate matter on February 27, due to two seemingly conflicting constitution bench decisions on the issue. The outcome of this verdict is poised to have significant implications for the mining sector and the distribution of fiscal powers between the central and state governments in India.
ALSO READ: [DAY-2] Supreme Court’s 9-Judge Bench Reviewed on Mineral Rights under MMDR Act
In a landmark decision in 1989, the seven-judge bench of the Supreme Court ruled in favor of India Cement, establishing the Centre as the primary authority under the Mines and Minerals (Development and Regulation) Act (MMDRA) concerning the regulation of mines and mineral development. The court held that while states can collect royalties under the MMDRA, they are not permitted to impose additional taxes on mining and mineral development. The ruling explicitly stated-
“……royalty constitutes a tax, and thus a cess on royalty, being an additional tax, falls outside the competence of the State Legislature……”
However, the issue was revisited in 2004 by a five-judge constitution bench during a dispute involving the imposition of cess on land and mining activities between the state of West Bengal and Kesoram Industries Ltd. The bench identified a typographical error in the 1989 verdict, clarifying that the phrase “royalty is a tax” should instead be read as “cess on royalty is a tax.” They asserted that the 1989 judgement essentially held that royalty is not a tax.
This discrepancy led to over 80 more petitions being filed in the Supreme Court over the years. Given that the India Cement matter was initially handled by a seven-judge bench, it was subsequently referred to a nine-judge bench to definitively determine whether royalty constitutes a type of tax or if there was an error in the India Cement case judgement.
ALSO READ: EXCLUSIVE || 9-Judge Bench | Supreme Court Reserves Verdict on Mineral Royalty Tax Status
During the eight-day hearing, Rakesh Dwivedi defended the states’ right to impose taxes on land and mineral activity. However, a robust group of senior advocates, including Harish Salve, Abhishek Singhvi, Arvind Dattar, AK Ganguly, Darius Khambata, Additional Solicitor General Aishwarya Bhati, and SK Bagaria, contested his arguments. These advocates maintained that only Parliament holds the authority to impose taxes on minerals under the MMDRA, and that states are completely stripped of the power to levy any taxes on mines and minerals.