SC reserves verdict on whether royalty on minerals is tax
The Supreme Court on Thursday reserved its verdict on the hugely contentious issue of whether the royalty payable on minerals is a tax under the Mines and Minerals (Development and Regulation) Act, 1957, and if only the Centre is vested with the power to levy such exaction or States also have the authority to impose levies on mineral bearing land in their territory.
A ninejudge Bench headed by Chief Justice DY Chandrachud heard the matter on eight days, while dealing with a batch of 86 appeals filed by different State governments, mining companies and public sector undertakings.
The Bench, also comprising Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, heard the arguments of various parties including the Centre.
During the hearing, the top court had said the Constitution vests the power to impose tax on mineral rights not in Parliament alone but also in States and underlined that such authority should not be diluted.
Attorney General R Venkataramani, appearing for the Centre, had contended the union had overriding powers with regard to tax mines and minerals.
Solicitor General Tushar Mehta, also representing the Centre, 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.
Senior advocate Rakesh Dwivedi, appearing for Jharkhand, one of the petitioners, had submitted that royalty is not tax and states have power to levy taxes on mines and minerals on the basis of Entries 49 and 50 of the State List.
Under Entry 49, States have the power to levy taxes on lands and buildings, while Entry 50 allows States to impose taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development. The ninejudge Bench of the apex court began hearing the complex matter on February 27 because of two apparently conflicting constitution Bench decisions on the issue.
ROOTS OF THE CASE
The case has its roots in a dispute between India Cement Ltd and the Tamil Nadu government. India Cement secured a mining lease in Tamil Nadu and was paying royalty to the State government. The State government then 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 argued the cess was by way of land revenue and on mineral rights, which it was empowered to impose.
The a sevenjudge Bench of the Supreme Court decided in favour of India Cement in 1989.
However, in 2004, a fivejudge Constitution Bench, while hearing another dispute over imposition of cess on land and mining activities between the State of West Bengal and Kesoram Industries Ltd held there was a typographical error in the 1989 verdict and that royalty was not a tax. It said the phrase “royalty is a tax” should instead be read as “cess on royalty is a tax” and that the 1989 judgement held that royalty is not a tax.