States' Power To Tax Mining Rights & Mineral-Bearing Lands Not Limited By MMDR Act; Royalty Not Tax: Supreme Court Holds By 8 :1 - clarify that the effect of today’s verdict will be prospective on 31-07-2024.

Supreme Court holds that States can levy cesses on mining and mineral-use activities; Justice BV Nagarathna dissents

 While dealing with the issue that whether State Governments are deprived of powers to tax and regulate activities concerning mines and minerals in view of the enactment of the Mines and Minerals (Development & Regulation) Act (‘Mines Act’), the Nine Judge Constitution Bench of Dr. DY Chandrachud, CJI, Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih JJ. has 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. Whereas, Justice BV Nagarathna, gave a dissenting opinion.The Court said that royalty is not in the nature of tax under the Mines Act, and concluded that the observation in India Cement Ltd. v. State of T.N., (1990) 1 SCC 12 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.The Court said that the legislative power to tax mineral rights lies with the State legislature and the Parliament does not have the legislative competence to tax mineral rights under Entry 50 of List 1 since it is a general entry and Parliament cannot use its residuary power regarding this subject matter. State legislature has the legislative competence under Article 246 of the Constitution read with Entry 49 of List 2 to tax mineral bearing lands.Justice BV Nagarathna held that royalty is the tax and States have no legislative competence to impose any tax or fee on mineral rights. While upholding India Cements (supra) she said that Entry 49 is not related to mineral-bearing lands.While clarifying its views on the difference between a royalty and a tax, the Court said that there are major conceptual differences between royalty and a tax:A proprietor charges royalty as a consideration for parting with rights to minerals while tax is an imposition of a sovereign.Royalty is paid in consideration of doing a particular action, that is extracting minerals in the soil, while tax is generally levied with respect to a taxable event determined by law.Royalty can be foreclosed from the lease deed as compared to tax which is enforced by law.The Bench will clarify that the effect of today’s verdict will be prospective on 31-07-2024.

[Mineral Area Development Authority etc.v Steel Authority of India, 

Civil Appeal Nos. 4056-4064 of 1999, decided on 25-07-2024]

Citation : 2024 LiveLaw (SC) 512