The Supreme Court on Wednesday held by an 8:1 majority that States have the power to levy royalty tax on mineral-bearing lands. The court ruled that a royalty is not the same as a tax.
Royalties are payments that the user party makes to the owner of an intellectual property or real property asset.
The matter was being heard by a 9-judge Constitution bench of the apex court, led by Chief Justice of India DY Chandrachud. Reading out the verdict, the court pointed out that the Union law – Mines and Minerals (Development and Regulation) Act, 1957, do not limit such powers of the States.
CJI Chandrachud wrote the judgment on behalf of himself and seven colleagues – Justices Hrishikesh Roy, Abhay S Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih.
Justice BV Nagarathna delivered a dissenting judgment.
Details of SC mineral tax hearing
The CJI 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.”
“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 Nagarathna disagreed on both aspects and said: “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.”
Findings of the majority on the Bench
What’s the case?
The case is on the hugely contentious issue of whether royalty payable on minerals is a tax under the the Mines and Minerals (Development & Regulation) Act, 1957, and if only the Central government holds the power to levy such exaction of the states too have the authority to impose levies on mineral bearing land in their territory.
The judgment in the matter was reserved by the bench on March 14 after it heard a batch of 86 appeals filed by different state governments, mining companies and public sector undertakings.
The 9-judge bench of the SC began hearing the complex matter on February 27 because of two apparently conflicting constitution bench decisions on the issue.
With inputs from Bar and Bench, LiveLaw
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SC upholds power of states to levy tax on mineral-bearing lands by 8:1 majority verdict
