Supreme Court 9-Judge Bench Starts Landmark Hearing on Whether Royalty from Mining Leases Can Be Considered as Tax.
The Supreme Court’s 9-judge Constitution Bench initiated hearings on February 27 to address complex issues related to the taxation of mineral-bearing lands, focusing primarily on the characterization of royalty under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) as a tax. The first day saw discussions on important considerations for the hearing and the interpretation of constitutional provisions concerning tax legislation powers allocated between the central and state governments.
The bench, led by Chief Justice DY Chandrachud, includes Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma, and AG Masih, addressing petitions against the Bihar Coal Mining Area Development Authority (Amendment) Act, 1992, and related regulations, which implemented additional cess and taxes on revenues from mineral-rich lands.
These issues were escalated to the 9-judge bench in 2011 following a three-judge bench’s framing of eleven critical tax law questions, including whether ‘royalty’ can be equated with tax and if the state legislature can base tax on land value on the land’s production.
A Senior Advocate, representing Jharkhand, posed five key inquiries for the bench’s consideration. These questions delved into the essence of royalty as defined in the MMDR Act, its classification as a tax, and the scope and limitations of constitutional entries that govern the central and state power distribution over taxation.
During the discussions, a Senior Advocate highlighted an ambiguity in paragraph 34 of the Kesoram Industries case judgment, which suggested conflicting views on whether royalty is considered a tax. This ambiguity spurred a conversation about the need for clarification on this matter, considering the direct implications on how royalties and cesses on mineral rights are perceived.
The court explored Entry 50 of the State List in the Constitution, which allows states to tax mineral rights with possible limitations by Parliament. The debates suggested that “limitation” should be understood as a cap on tax powers rather than a transfer of these powers to Parliament, emphasizing a balance between national interest and state autonomy.
The case under discussion, Mineral Area Development v. M/S Steel Authority Of India & Ors (CA N0. 4056/1999), delves into significant matters regarding the distribution of legislative power between the Union and the States, and the specific powers of states to levy taxes on mineral rights, considering the overarching regulatory framework established by Parliament.