A significant judgment delivered in a 8:1 ratio by a nine-judge Constitution Bench headed by Chief Justice of India DY Chandrachud on Thursday held that the power of State Legislatures to tax mining lands and quarries is not limited by the Parliament’s Mines and Minerals (Development and Regulation) Act of 1957.
The judgment frees States from the restrictions of the Centre and is in tune with the federalist principles of governance.
The majority judgment pronounced by Chief Justice Chandrachud said that State Legislatures derive their power to tax mines and quarries under Article 246 read with Entry 49 (tax on lands and buildings) in the State List of the Seventh Schedule of the Constitution. Justice BV Nagarathna gave a dissenting opinion.
“Mineral bearing lands fall within the description of ‘lands’ in Entry 49,” Chief Justice Chandrachud held.
The majority judgment said the Parliament, through the MMDR Act, cannot limit the power of the State to legislate on the taxation of mines and quarries within their jurisdiction.
The Centre, during the arguments, had argued that Entry 50 in the State List had allowed the Parliament to impose “any limitations” on taxes on mineral rights through laws relating to mineral development, in this case, the MMDR Act.
However, the Chief Justice responded in the judgment to the argument by noting that Entries 50 and 49 of the State List “deal with distinct subject matters and operate in different fields”.
The limitations imposed by the Parliament in a law like the MMDR Act, which related to mineral development, did not operate on or influence State taxation of mining lands under Entry 49 in the State List merely for the reason that “there is no specific stipulation in the Constitution to that effect”.
“Entry 50 of List II does not constitute an exception. The power to tax mineral rights vests in the State Legislatures. The Parliament does not have the legislative competence to tax mineral rights, with Entry 54 of the Union List (Regulation of mines and minerals development declared by parliamentary law to be expedient in the public interest) being only a general entry. Power to tax mineral rights is enumerated in List II. The Parliament cannot use its residuary powers with respect to that subject matters,” Chief Justice Chandrachud held.
The majority verdict further clarified that royalty paid by those who lease mines to the government is not tax.
“Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights,” Chief Justice Chandrachud noted.
The majority verdict interpreted that the liability to pay a royalty originated out of the contractual conditions in the mining lease. Even arrears cannot be deemed to be a payment of tax.
Yield of land
The tax payable to the State government depends on the “yield” of the mineral-bearing land.
The yield of such a land is based on the royalty payable or the quantity of minerals produced from mining it, the court said.
The judgment came in a batch of 86 appeals filed by different State governments, mining companies and public sector undertakings.
The other judges in the Bench include Justices Hrishikesh Roy, Abhay S Oka, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih.
During the hearing, Attorney General R Venkataramani, appearing for the Centre, had contended the Union had overriding powers with regard to taxing mines and minerals.
Solicitor General Tushar Mehta, also representing the Centre, had said the entire architecture of the Mines and Minerals (Development and Regulation) Act (MMDRA) is the limitation on the States’ legislative power to impose tax on minerals, and under the law, the central government has the power to fix royalty.
“The MMDRA wholly occupies the field and provides for a complete code covering every aspect of “regulation” and “development” of mines and minerals, including any Government exaction/ imposition in relation to mines and minerals thereby necessarily limiting a State legislature’s competence to impose any other levy beyond what is stipulated under MMDRA and the rules framed thereunder,” he had submitted.
Senior advocate Rakesh Dwivedi, appearing for Jharkhand, one of the petitioners, had submitted that royalty is not tax and States had the power to levy taxes on mines and minerals on the basis of Entries 49 and 50 of the State List.
A battery of senior advocates like Harish Salve, Abhishek Singhvi, Arvind Dattar, AK Ganguly, Darius Khambata, Additional Solicitor General Aishwarya Bhati and SK Bagaria appeared in the case.
Case background
The case has its roots in a dispute between India Cement Ltd and the Tamil Nadu government. India Cement had secured a mining lease in Tamil Nadu and was paying royalty to the State government.
The State government had imposed a cess in addition to royalty on India Cement, which moved the Madras High Court against the measure, contending that a cess on royalty meant a tax on royalty which was beyond the remit of the state legislature.
The Tamil Nadu government had argued the cess was by way of land revenue and on mineral rights, which it was empowered to impose.
A seven-judge Bench of the Supreme Court decided in favour of India Cement in 1989. It had ruled the Centre was the primary authority under the MMDRA with regard to regulating mines and mineral development.
Over 80 more petitions were filed in the Supreme Court over the years and since the India Cement matter was dealt with by a seven-judge Bench, the matter was referred to a nine-judge Bench to decide whether royalty was a type of tax or there was an error in the India Cement case judgment.
