The Supreme Court of India clarified that the royalty payable on minerals does not constitute a tax. The judgment, delivered by a nine-judge Constitution bench led by officials, overturns previous interpretations and redefines the scope of state powers concerning mining and mineral resources.
The ruling corrects the earlier precedent set by a seven-judge bench in the 1989 case of India Cements v State of Tamil Nadu, which had mistakenly classified royalty as a tax under the Mines and Minerals (Development and Regulation) Act (MMDR Act). This classification was later challenged in the 2005 case of Kesoram Industries v State of West Bengal, which identified the earlier decision as flawed due to typographical errors in equating royalty with taxation.
The Supreme Court’s recent verdict, passed by an 8:1 majority, confirms that while royalty payments are a form of revenue from mineral extraction, they do not fall under the definition of taxes. Consequently, states retain the legislative competence to levy taxes on lands bearing mines and minerals under the Indian Constitution. Chief Justice majority opinion reflects a nuanced understanding of mineral royalties, differentiating them from taxes imposed on the mining industry.
The sole dissenting voice, offered an alternate perspective, but the majority ruling prevails. The judgment, reserved on March 14, 2024, marks a significant shift in the legal landscape governing mineral resource management. This clarification provides states with greater latitude to implement taxation policies on mining operations, potentially enhancing revenue streams for regional development. However, it also reinforces the distinction between royalties—regulated by specific legislation—and taxes, which fall under broader fiscal authorities. The Supreme Court’s decision is poised to influence future legislative and policy decisions regarding mineral resources, ensuring a clear demarcation between different types of financial obligations imposed on the mining sector.
