The royalty paid by mining operators to the Union government is not a tax and the states have the right to levy cesses on mining and mineral-use activities, the Supreme Court ruled on Thursday, Bar and Bench reported.
The judgement was delivered by a nine-judge bench headed by Chief Justice DY Chandrachud. Justice BV Nagarathna dissented from the majority.
The bench was deciding on whether state governments have the authority to regulate and tax activities relating to mines and minerals under the Mines and Minerals Development and Regulation Act.
Chandrachud said that royalty was not in the nature of tax. “We conclude that the observation in India Cements judgement stating that royalty is tax is incorrect,” Chandrachud was quoted as saying by Bar and Bench. “…payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears.”
Therefore, states were not divested of powers to levy cesses on activities related to mining, eight judges of the bench said.
In 1989, the Supreme Court held in the case involving cement manufacturer India Cements and the Tamil Nadu government that the royalty was a type of tax as per the Mines Act. Therefore, the state government did not have the power to add cesses on such royalties.
In a case involving Kesoram Industries and the West Bengal government in 2004, a five-judge bench said that the 1989 Bench had made a typing error and had meant to rule that only the cess on royalty is a type of a tax and not the royalty itself.
In 2011, a three-judge bench held that there was a prima facie conflict between the two verdicts of 1989 and 2004 and referred the matter to a nine-judge bench, Bar and Bench reported.
On Thursday, the court ruled that the state legislature is the competent authority to tax mineral rights and Parliament “does not have the legislative competence” to do so under “Entry 50 of List 1 since it is a general entry and Parliament cannot use its residuary power regarding this subject matter”.
Nagarathna, however, disagreed saying that she holds royalty in the nature of the tax, Live Law reported.
“States have no legislative competence to impose any tax or fee on mineral rights,” she said in her dissenting judgement. “Entry 49 is not related to mineral bearing lands. I hold India Cements decision was correctly decided.”
This was the oldest pending nine-judge bench case in the Supreme Court, Bar and Bench reported.
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