States have unlimited right to tax mineral-rich lands: Supreme Court

Sub: Polity

Sec: Constitution

Context:

A significant judgment delivered in a 8:1 ratio by a nine-judge Constitution Bench on July 25 held that the power of State Legislatures to tax mining lands and quarries is not limited by the Parliament’s Mines and Minerals (Development and Regulation) Act of 1957.

What is the Supreme Court judgment?

In 1989 Supreme court in India Cement Ltd. vs Tamil Nadu Government case ruled that states were permitted only to collect royalties and not impose additional taxes.
The court considered royalties as taxes and imposing any cess on them is beyond state jurisdiction.
The Constitution Bench headed by Chief Justice of India (CJI) D.Y. Chandrachud has overturned the 1989 judgment which ruled that royalties were not a tax.
The majority judgment said the Parliament, through the MMDR Act, cannot limit the power of the State to legislate on the taxation of mines and quarries within their jurisdiction.
The bench ruled that Parliament does not possess the power to tax mineral rights which are under Entry 50 of the List II of the Constitution, which governs state powers and is limited to imposing restrictions and not taxes.
State Legislatures derive their power to tax mines and quarries under Article 246 read with Entry 49 (tax on lands and buildings) in the State List of the Seventh Schedule of the Constitution.
CJI also held that the Parliament does not have the legislative competence to tax mineral rights, with Entry 54 of the Union List (Regulation of mines and minerals development declared by parliamentary law to be expedient in the public interest) being only a general entry.
Power to tax mineral rights is enumerated in List II.

What is royalty?

Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights.
It originates from an agreement between parties.
Royalties are the fees paid to the owner of a product in exchange for the right to use that product.
The majority verdict further clarified that royalty paid by those who lease mines to the government is not tax.