A nine-judge Constitution Bench of the Supreme Court on Thursday 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 (Mineral Area Development Authority etc vs Steel Authority of India and ors).
The judgment was delivered by the Bench of Chief Justice of India (CJI) DY Chandrachud with Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih with Justice BV Nagarathna dissenting from the majority.
The Court ruled that the Mines and Minerals (Development & Regulation) Act (Mines Act) will not denude the States of the power to levy tax on mineral rights.
In view of the above conclusions, the Court overruled its 1989 judgment in the case of India Cement Ltd vs. State of Tamil Nadu.
However, Justice Nagarathna dissented on all the conclusions drawn by the majority judges.
Reading out the majority judgment, CJI Chandrachud said:
"Royalty is not in the nature of tax ... We conclude that the observation in India Cements judgment 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."
Consequently, the majority on the Bench held that States are not denuded of powers to levy cess on mining or related activities.
"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 read with Entry 49 of List 2 to tax mineral bearing lands," the majority ruled.
Justice BV Nagarathna, however, disagreed on both aspects.
"I hold royalty is in nature of the tax. States have no legislative competence to impose any tax or fee on mineral rights. Entry 49 is not related to mineral-bearing lands. I hold India cement decision was correctly decided."
After the judgment dictation today, the Court was urged by various petitioners to clarify that the effect of today's verdict will be prospective and not affect past transactions.
The verdict today will have a significant impact, the Court was told.
The Bench, in turn, agreed to clarify this aspect of the matter on July 31.
"We will keep this case on Wednesday only to decide this aspect.. whether it should be prospective or not," the CJI assured.
The case involved the issue of whether State governments are denuded 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).
In 1989, the Supreme Court had held in the case of
India Cement Ltd v State of Tamil Nadu that the royalty is a form of 'tax' under the Mines Act and that the imposition of cesses on such royalty was beyond the States' legislative competence.
In January 2004, a five-judge Bench in
State of West Bengal v Kesoram Industries Ltd by a 3:2 majority held that the 1989 Bench had made a typo and only meant to say that cess on royalty is a form of tax and not the royalty itself.
In March 2011, a three-judge bench
held that there was a “prima facie” conflict between the decisions in the India Cements (1989 judgment) and
Kesoram Industries (2004) cases, leading to the reference of the matter to a nine-judge Bench.
Before the nine-judge Bench, the Central government argued that States cannot levy taxes on mineral-bearing lands and that the royalties levied by the Central government eventually go to the States only.
"The development of mineral industry needs uniformity at a national level failing which fragmented State-wise levy will adversely impact the development of mineral and systemic utilization of minerals in larger public interest," Solicitor General Tushar Mehta had argued.
