The Supreme Court on Wednesday upheld that the States have the power to levy royalty tax on mineral-bearing lands.
In a landmark 8:1 verdict, a 9-judge Constitution bench of the apex court, led by Chief Justice of India DY Chandrachud, pointed out that the Union law – Mines and Minerals (Development and Regulation) Act, 1957, does not limit such powers of the States.
The key questions that the court examined were (1) whether royalties on mining leases be considered as tax and (2) whether the States have the power to levy royalty/tax on mineral rights after the enactment of Parliamentary law Mines and Minerals (Development and Regulation) Act 1957.
Royalty is not within the nature of tax as it is a contractual consideration paid by the lesssee under the mining lease. Both royalty and debt rent do not fulfill the characteristics of tax. The judgment in India Cements holding royalty to be a tax is overruled, said CJI Chndrachud while delivering the judgment.
Justice Nagarthna, disagreeing with the majority, held that royalty is in the nature of a tax. Hence, the provisions of the MMDR Act regarding levy of royalty denude the States of their power to levy taxes on minerals.
Justice Nagarathna further held that “land” under Entry 49, List 2 will not include “mineral bearing lands” as it would amount to double taxation on mineral rights. It would be impermissible to hold that the States have power to levy tax over and above the royalties paid by the lease-holder of the mining lease.
Justice Nagarathna opined that allowing States to levy taxes on minerals would lead to a lack of uniformity on a national resource. This could also lead to unhealthy competition among the States. This may result in the breakdown of the federal system.
