Mineral Tax: Victory for states as 9-judge SC bench upholds 'power of states to levy duty'

• Supreme Court upholds states' power to tax mineral-bearing lands with an 8:1 majority
• Royalty from mining leases is contractual and not deemed a tax
• Parliament's inability to tax mineral rights through residuary rights affirms states' taxing authority

On Thursday, the Supreme Court upheld the power of states to levy taxes on mineral-bearing lands with an 8:1 majority. Chief Justice of India (CJI) D Y Chandrachud clarified that royalty flows from mining leases and is determined based on the quantity of minerals removed. The payment of royalty is a contractual obligation between the lessor and lessee and is not for public purposes but exclusive use charges.

CJI Chandrachud explained, "Contractual payments due to the government cannot be deemed a tax. The proprietor charges royalty for parting with minerals, foreclosed by the lease deed, while tax is enforced. We hold that the India Cements judgment stating royalty is a tax is incorrect."

Addressing legislative competence, CJI Chandrachud noted, "If Parliament has no legislative competence to tax mineral rights, can it use the residuary rights to tax the same? It is to be held as negative. The field of taxation cannot be derived from regulatory taxation entries. Since entry 54 of List 1 is general, it will not include the power of taxation."

The CJI emphasized that unless Parliament imposes a limitation, the state's plenary right to impose taxes on mineral rights remains unaffected. He stated, "Parliament can impose limitations under entry 50 of List 2 using statutory instruments. The scheme of the MMRDA Act cannot be stretched to impinge upon the taxing rights of the states."