New Delhi: The Supreme Court on Thursday upheld state governments’ right to levy royalty on mineral-bearing land, reasoning they had competence and power to do so. While this will primarily benefit mineral-rich states like Odisha, Jharkhand, Bengal, Chhattisgarh, Madhya Pradesh, and Rajasthan, Jammu & Kashmir is also poised to benefit to some extent.
The landmark 8:1 verdict was delivered by a bench led by Chief Justice DY Chandrachud, which ruled ‘royalty’ is not the same as ‘tax’; Justice BV Nagarathna delivered the dissenting verdict.
Justice Nagarathna said allowing states to tax mineral rights would lead to “unhealthy competition between states to derive revenue… the national market could be exploited… this would lead to a breakdown of the federal system, in the context of mineral development”.
Minutes earlier the majority verdict said “royalty is a contractual (consideration) paid by lessee to lessor” and that Parliament “does not have power to tax mineral rights under Entry 50, List I”.
The eight-judge verdict said there is no provision in the MMDRA (the Mines and Minerals (Development and Regulation) Act) that “imposes limitations on state to tax minerals”.
“We hold that both royalty and debt rent don’t fulfil the ingredients of tax,” the Chief Justice said.
The centre had argued that only Parliament has the power to impose taxes on minerals.
In March, the Chief Justice had asked Solicitor General Tushar Mehta, appearing for the centre, if this contention affects distribution of power between centre and states as in the Constitution.
“Why does the statute not say ‘this is the tax that the Union will be charging and, to that extent the power of state is denuded’… or something like that?” the court asked Mr Mehta.
“If such tax is imposed, it would be invalid or unconstitutional tax. There is an in-built statutory mechanism which says that this will be the amount and nothing more…” he responded, pointing to rates of 300 per cent and 500 per cent levied before the top court’s 1989 verdict.
