Landmark Supreme Court Verdict Gives Mineral-Rich States Power to Collect Royalty and Impose Additional Tax
In a historic ruling by the Supreme Court, mineral-rich states are poised to experience a significant financial windfall. A nine-judge bench, with a majority verdict of 8:1, has declared that states have the authority to collect royalty on minerals extracted from their territories, as well as levy additional tax on mineral-bearing land. This pivotal judgment, expected to have retrospective implications, has stirred anticipation in states such as Odisha, Chhattisgarh, Jharkhand, Andhra Pradesh, Goa, Madhya Pradesh, and Karnataka, possibly resulting in financial gains amounting to thousands of crores.
The dissenting opinion by Justice B V Nagarathna, asserting that only the Centre possesses the power to levy tax on minerals, delineated a notable point of contention. The Solicitor General Tushar Mehta and eminent advocates A M Singhvi and Arvind Datar advocated for prospective implementation of the judgment. Conversely, senior advocate Rakesh Dwivedi, representing the mineral-rich states, objected to this proposition. The Supreme Court has scheduled a hearing for the involved parties to deliberate on this matter.
However, an essential clarification outlined by the Supreme Court stipulates that this ruling does not extend to oilfields, mineral oil resources, petroleum, and petroleum products. This exemption aligns with the Union government’s stance, emphasizing the Centre’s exclusive jurisdiction, as defined by Entry 53 of List I of the Seventh Schedule, over these specific assets. Notably, arguments pertaining to this issue were not addressed by Dwivedi and other counsel for the states.
In the noteworthy 8:1 verdict, Chief Justice D Y Chandrachud authored the primary judgment, in concurrence with Justices Hrishikesh Roy, A S Oka, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish C Sharma, and A G Masih. This ruling conclusively resolves a 25-year-old dispute originating from a series of petitions, which steadily multiplied over the years, advocating for the enforcement of states’ prerogative to collect royalty on extracted minerals and impose tax on mineral-bearing land. The Union government’s opposition cited the provision of the Mines and Minerals (Development and Regulation) Act, contending that royalty constituted a tax falling under central jurisdiction.
The predominant judgment decidedly discerns that “royalty is not a tax”, establishing it as a contractual remuneration disbursed by the mining lessee to the lessor for the exploitation of mineral rights. Elucidating this stance, the CJI articulated, “The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears,” encapsulated in the exhaustive 200-page judgment.
Acknowledging Dwivedi’s assertions on behalf of the states and scrutinizing the interplay of entries in the Union and State Lists in the Seventh Schedule, the Supreme Court asserts, “We hold that both royalty and dead rent do not fulfill the characteristics of tax or impost.” This landmark ruling not only overturns numerous previous constitution bench judgments but also provides states with the authority to tax mineral-bearing land, an endeavour contested by the Centre.
The court emphasized, “State legislatures have legislative competence under Article 246 read with Entry 49 of List II to tax lands which comprise of mines and quarries. Mineral-bearing land falls within the description of ‘lands’ under Entry 49 of List II.” Furthermore, it elucidated, “The yield of mineral-bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land under Entry 49 of List II (state subject). Entries 49 and 50 of List II deal with distinct subject matters and operate in different fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II.” Additionally, the Supreme Court emphasized that while Entry 50 of List II empowers Parliament to impose limitations or restrictions pertaining to mineral development, the prevailing Mines and Minerals (Development and Regulation) Act has not imposed any such restrictions as envisioned in Entry 50 of List II.
This profound verdict is poised to have a transformative impact on the revenue potential of mineral-rich states. As they eagerly anticipate the forthcoming developments, the legal landscape stands fundamentally altered, setting the stage for a financial metamorphosis.
