A nine-judge Constitution Bench of the Supreme Court on Friday rejected review petitions against its judgment which held that royalty paid by mining operators to the Central government is not a tax and that states have the power to levy cesses on mining and mineral-use activities. [Karnataka Iron and Steel Manufacturers Association v. Mineral Area Development Authority]
The judgment was delivered by a Bench of Chief Justice of India (CJI) DY Chandrachud with Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih.
"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 judgment stated.
However, Justice Nagarathna dissented from the majority, issued notice on the review petitions, and also allowed the plea for an open court hearing of the review petitions. She had dissented in the judgment under review as well.
The top court had ruled that the Mines and Minerals (Development & Regulation) Act (Mines Act) will not denude states of the power to levy tax on mineral rights.
It overruled its 1989 judgment in the case of India Cements Ltd vs. State of Tamil Nadu.
Reading out the majority judgment, CJI Chandrachud said:
"Royalty is not in the nature of tax...We conclude that the observation in India Cements judgment stating that royalty is tax is incorrect...Payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears."
The findings of the majority on the Bench included the following:
Unless the Parliament imposes a limitation, the State's plenary right to impose taxes on mineral rights is unaffected.
Parliament can impose limitations under Entry 50 of List 2 of the Constitution by means of statutory instruments. The scheme of the MMRDA Act cannot be stretched to impinge upon the taxing rights of the States.
Since the royalty paid under Section 9 is not a tax on mineral rights, any limitation on the enhancement of royalty is not an imposition of a tax under Entry 50 of List 2. Section 9 limits power of the centre and it does not govern tax.
The expression "land" includes land of every description.. It can be used to grow tea leaves or extract minerals.. Thus we hold that the State legislature is competent to design a levy under Entry 49 of List 2 to tax lands which comprise of mines and quarries. In other words, mineral-bearing lands also fall under the expression of "land" under Entry 49 of List 2.
While holding that a royalty payment is not a tax, the majority also explained its views on the difference between a royalty and a tax as follows:
"There are major conceptual differences between royalty and a tax. One, a proprietor charges royalty as a consideration for parting with rights to minerals while tax is an imposition of a sovereign. Two, royalty is paid in consideration of doing a particular action, that is extracting minerals in the soil while tax is generally levied with respect to a taxable event determined by law. Three, royalty can be foreclosed from the lease deed as compared to tax which is enforced by law."
[Read Judgment]