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Informist, Thursday, Jul 25, 2024

 

--SC says royalty payable on minerals not in nature of tax 

--CONTEXT: SC order on whether royalty payable on minerals is a tax 

--SC upholds states' power to levy tax on mineral-bearing lands 

 

NEW DELHI – The Supreme Court today upheld state governments' power to levy tax on mineral-bearing lands in a majority 8:1 judgement. The top court held that royalty payable on minerals is not in nature of tax under the Mines and Minerals (Development and Regulation) Act, 1957.

 

"The expression 'land' in Entry 49 of List 2 (state list) covers all sorts of land. Mineral-bearing lands also fall under the description of land under this entry in the state list and, hence, states are competent to tax them," the top court said. 

 

The majority judgement, read by Chief Justice of India D.Y. Chandrachud, said that royalty is a contractual consideration paid by the mining lessor to the lessee. "Payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears," Chief Justice Chandrachud said.

 

The apex court held that 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 (Union list) since it is a general entry, and the Parliament can't use its residuary power in this matter. There is no specific provision in the Mines and Minerals (Development and Regulation) Act imposing limitations on the taxing powers of the state, the top court said.

 

It further elaborated that the yield of mineral-bearing land can be used as a measure to tax mineral-bearing lands. "The limitation imposed by the Parliament under Entry 50 List 2 (state) does not affect Entry 49 List 2 (state) since there is no constitutional scheme in this regard," the top court said.

 

Justice B.V. Nagarathna's was the lone dissenting voice amongst the nine judges. She held that royalty is in nature of tax under the Mines and Minerals (Development and Regulation) Act. "States have no legislative competence to impose any tax or fee on mineral rights. Entry 49 does not relate to mineral-bearing lands," she said.

 

Justice Nagarathna further said that states are denuded of power to impose a cess or any other levy on royalty or define it as land revenue which can be imposed by states under Entry 49 List 2 (state list). Such a levy by state on royalty is against mineral development in the country, she added. She held that mineral value or mineral produce can't be used as a measure to tax mineral-bearing land under Entry 49 List 2 (state list). The term "land" under Entry 49 does not include mineral-bearing land and, thus, it will lead to double taxation, once by the state and again by the central act under Section 9 of the Mines and Minerals (Development and Regulation) Act, Justice Nagarathna said. "Thus, royalty cannot be a means to tax mineral-bearing land," she asserted. While eight judges of the apex court disagreed with its previous judgements on the issue, Justice Nagarathna upheld all the verdicts.

 

The top court was hearing a batch of appeals filed by different state governments, mining companies and public sector undertakings. Some of the state governments, such as Jharkhand, Andhra Pradesh and Odisha, have said the power to collect tax on minerals is exclusive to state governments by virtue of Entry 50. The government and mining companies have said the power to collect tax is restricted by the Mines and Minerals (Development and Regulation) Act.

 

The case has its genesis in a dispute between India Cements Ltd and the Tamil Nadu government. India Cements had secured a mining lease from the state government and was paying a royalty to it. However, the state government imposed a cess in addition to the royalty on the company. Consequently, India Cements moved the Madras High Court against the state government's decision and, after some litigation, the case reached the top court.

 

In 1989, a seven-judge bench of the apex court ruled in favour of India Cements. The bench said the Centre was the primary authority under the Mines and Minerals (Development and Regulation) Act with regards to regulating mines and mineral development. The top court held that states could collect a royalty under the Mines and Minerals (Development and Regulation) Act, but could not impose further tax on mining and mineral development. The court held that royalty was a tax and, as such a cess on royalty being a tax on royalty, was beyond the competence of the state legislature.

 

In 2004, a five-judge bench of the top court, while hearing a different case, observed that there was a typographical error in the 1989 verdict and said royalty was not a tax. Thereafter, more than 80 petitions have been filed in the apex court over the years on the issue.  End

 

Reported by Surya Tripathi

Edited by Namrata Rao

 

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