SC dismisses review pleas on allowing states to levy tax on minerals

New Delhi [India], October 5 (ANI): The Supreme Court has dismissed petitions seeking to review the 9-judge bench judgement, which held that states have the power to levy tax on mines and minerals bearing lands under the Constitution and also ruled that royalty payable on extracted minerals is not a tax.

A bench of Chief Justice of India DY Chandrachud with Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih rejected the review petitions.

However, Justice Nagarathna dissented from the majority and a case of review was made out and notice was issued on review petitions. She had also dissented in the judgement under review as well.

“Having perused the review petitions, there is no error apparent on the face of the record. No case for review under Order XLVII Rule 1 of the Supreme Court Rules 2013 has been established,” the order on review pleas stated.

Seeking to review a judgement of the nine-judge bench of the apex court that allowed states to collect royalty on extracted minerals and to levy tax on mineral-bearing land, the Central government in September had approached the top pointing out several ‘errors apparent in the judgement’.

On July 25, a nine-judge bench in a majority 8:1 verdict, had ruled that the legislative power to tax mineral rights vests in states and not Parliament.

In a subsequent order on Aug 14, the apex court clarified that the judgement will not have prospective effect and allowed states to collect past dues on royalty and tax on mines and mineral bearing land from April 1, 2005, from Centre and mining lease holders.

It had said that past dues would be paid in a staggered manner over the next 12 years from April 1, 2026.

The apex court had further stated that there should be no levy of interest or penalty for the demand made for the period before July 25, 2024.

July 25 majority judgement had stated, “Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears.”

It had said that the legislative power to tax mineral rights vests with the state legislatures and Parliament does not have the legislative competence to tax mineral rights under Entry 54 of List 1, as it being a general entry.

“Since the power to tax mineral rights is enumerated in Entry 50 of List 2, Parliament cannot use its residuary power with respect to that subject matter,” it had added.

Justice Nagarathna disagreeing with the majority verdict, had held that royalty is in the nature of a tax. Hence, the provisions of the Union law- Mines and Minerals (Development and Regulation) Act 1957 (MMDR Act) regarding levy of royalty denude the States of their power to levy taxes on minerals.

The minority judgement stated that allowing States to levy taxes on minerals would lead to a lack of uniformity on a national resource. This could also lead to unhealthy competition among the States and this may result in the breakdown of the federal system, Justice Nagarathna said.

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).