In a significant legal decision, the Supreme Court of India ruled that royalties paid on minerals do not constitute a tax, thereby granting states the authority to impose such charges. This ruling marks a major setback for the central government.
Key Decision and Bench Composition
A nine-judge bench, led by Chief Justice of India D.Y. Chandrachud, delivered this landmark verdict. The bench included Justices Hrishikesh Roy, A.S. Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih. The majority opinion, read by Chief Justice Chandrachud, asserted that under the Constitution, states have the legislative competence to tax mines and minerals-bearing lands.
The ruling centred on Entry 50 of List II of the Constitution, which pertains to taxes on mineral rights, subject to parliamentary restrictions on mineral development. The Chief Justice clarified that Parliament does not possess the power to tax mineral rights under this entry. This decision overturned the 1989 Supreme Court ruling that had classified royalty as a tax.
Justice B.V. Nagarathna provided the lone dissenting opinion, arguing that the Centre should retain the exclusive right to tax mineral rights. She expressed concerns that allowing states equal authority could create legislative anomalies, leading to overlapping jurisdictions and complications.
Implications of the Ruling
This ruling addresses the long-standing debate over whether royalties on minerals should be considered taxes under the Mines and Minerals (Development and Regulation) Act, of 1957. It clarifies that states, not just the Centre, have the authority to levy taxes on mineral-bearing lands within their territories. This decision delineates the division of powers between the central and state governments concerning mineral rights.
Future Considerations
The Supreme Court has scheduled a hearing for July 31 to discuss whether the judgment should be applied retrospectively or prospectively. A retrospective application could significantly benefit state governments, including those of West Bengal, Odisha, and Jharkhand, which have local laws imposing additional levies on miners.
This landmark ruling reaffirms the constitutional competence of states to impose taxes on mineral royalties, shifting the balance of power from the Centre to state governments. It underscores the importance of state autonomy in fiscal matters, especially concerning natural resource management.
This decision is expected to have far-reaching implications for the mining industry and the distribution of revenue between the central and state governments.