The Supreme Court on Wednesday ruled that mineral-rich states can collect past dues on royalty and taxes on mines and mineral-bearing land from April 1, 2005, from both the Centre and mining lease holders. A nine-judge Constitution bench directed that these past dues be paid in a staggered manner over the next 12 years, starting from April 1, 2026.
The apex court further stated that no interest or penalty should be levied for demands made for the period before July 25, 2024. The bench dismissed the argument that the judgment delivered on July 25, which upheld the states' power to levy taxes on mines and mineral-bearing lands, should be applied only prospectively. The bench, comprising Chief Justice of India DY Chandrachud and Justices Hrishikesh Roy, Abhay S. Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih, was deciding whether the royalty levied by the Centre on mines and mineral-bearing lands since 1989 should be refunded to the states.
On July 25, the nine-judge Constitution bench, in an 8:1 majority verdict, held that states have the power to levy taxes on mines and mineral-bearing lands under the Constitution and ruled that the royalty payable on extracted minerals is not a tax. Solicitor General Tushar Mehta, representing the Centre, argued that making the July 25 verdict retrospective would have cascading effects on prices, ultimately burdening the common man, as almost all industries depend on minerals.
In the majority judgment, CJI Chandrachud and seven other judges stated, "Royalty is not a tax. It is a contractual consideration paid by the mining lessee to the lessor for the enjoyment of mineral rights. The liability to pay royalty arises from the contractual conditions of the mining lease. Payments made to the government cannot be deemed a tax merely because the statute provides for their recovery as arrears." The judgment clarified that the legislative power to tax mineral rights rests with state legislatures, and Parliament does not have the legislative competence to tax mineral rights under Entry 54 of List 1, as it is a general entry.
"Since the power to tax mineral rights is enumerated in Entry 50 of List 2, Parliament cannot use its residuary power with respect to that subject matter," the bench added. However, Justice Nagarathna, dissenting from the majority verdict, held that royalty is in the nature of a tax. Consequently, the provisions of the Union law--Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act)--regarding the levy of royalty undermine the states' power to levy taxes on minerals. In her minority judgment, Justice Nagarathna cautioned that allowing states to levy taxes on minerals could lead to a lack of uniformity concerning a national resource. This could also result in unhealthy competition among states and potentially lead to the breakdown of the federal system. The case centered on whether state governments are deprived of the power to tax and regulate activities concerning mines and minerals due to the enactment of the Mines and Minerals (Development & Regulation) Act (Mines Act).