New Delhi: The Supreme Court on Thursday held that the royalty paid by mining operators to the Centre is not a tax.
It also ruled that states have the power to levy cesses on mining and mineral-use activities, stating that the Mines and Minerals (Development & Regulation) Act (Mines Act) will not denude such powers.
The verdict was delivered by a nine-judge Constitution Bench of the Supreme Court, led by Chief Justice of India (CJI) DY Chandrachud. The bench comprised other justices like Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih and Nagarathna. While the verdict was supported by eight justices, Justice Nagarathna dissented from the majority.
“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,” CJI Chandrachud said, while reading out the verdict, as quoted by Bar and Bench.
“The legislative power to tax mineral rights lies with the State legislature and Parliament does not have the legislative competence to tax mineral rights under Entry 50 of List 1 since it is a general entry and Parliament cannot use its residuary power regarding this subject matter … State legislature has the legislative competence under Article 246 read with Entry 49 of List 2 to tax mineral bearing lands,” the majority ruled.
The apex court overruled its 1989 judgment in the case of India Cement Limited vs. State of Tamil Nadu. This matter was the oldest pending nine-judge Bench case before the Supreme Court since 2011.
Big impact for Odisha
In 2004, the previous BJD government headed by Naveen Patnaik had enacted the Odisha Rural Infrastructure & Socio-Economic Development (ORISED) Act. The Act had sought to levy a new tax on mineral-bearing lands, but was struck down by the Orissa High Court.
This is in tune with the SC’s order, which also says that states have the legal competence to tax mineral-bearing lands.
The verdict also comes a couple of days after Odisha suffered setback with the Centre refusing to revise coal royalty, one of the main sources of revenue. The BJD had said the state was losing Rs 10,000 crore per annum because of the non-revision of the coal royalty.
The rates were last revised on May 10, 2012.
On Monday, Union minister of Coal and Mines G Kishan Reddy informed the Rajya Sabha that the study group, constituted on May 2014 for examining the issue, inferred that the coal producing states had suggested to increase the rates of royalty from existing 14% to roughly 20%, whereas the coal-consuming stakeholders suggested reducing the present rate of royalty from 14% to roughly 5-6%.
BJD MP Sasmit Patra said that it is unfortunate that the Centre is now claiming that DMF funds are a suitable alternative to coal royalty.
What were the previous observations?
1989: The Supreme Court held in the case of India Cement Ltd v State of Tamil Nadu that the royalty is a form of ‘tax’ under the Mines Act and that the imposition of cesses on such royalty was beyond the states’ legislative power.
1995: A three-judge Bench of the Supreme Court in the State of Madhya Pradesh vs Mahalaxmi Fabric Mills Ltd upheld Section 9 of the Mines Act. It reiterated the 1989 decision.
2004: A five-judge Bench in State of West Bengal vs Kesoram Industries Ltd held that the 1989 Bench had made a typo. It observed that the previous bench only meant to say that cess on royalty is a form of tax and not the royalty itself.
2011: A three-judge bench held that there was a “prima facie” conflict between the decisions in the 1989 judgment and Kesoram Industries (2004) cases. Thus the matter was referred to the the nine-judge Bench.
Subheader: What did the Centre argue?
The Centre on Thursday argued that the states cannot levy taxes on mineral-bearing lands. It further stated that the royalties levied by the Centre eventually go to the states only.
“The development of mineral industry needs uniformity at a national level failing which fragmented state-wise levy will adversely impact the development of mineral and systemic utilization of minerals in larger public interest,” Solicitor General Tushar Mehta had reportedly said.
