Supreme Court Verdict on States’ Right to Tax Mineral-Rich Lands

Syllabus: Government Policies and Interventions

Source: TH

Context: The Supreme Court ruled that States have the unlimited right to tax mining lands and quarries, independent of the Parliament’s Mines and Minerals (Development and Regulation) Act of 1957.

The 8:1 judgment, led by Chief Justice D.Y. Chandrachud, affirmed that State Legislatures’ power to tax is derived from the Constitution and is essential for their revenue generation.

Background of the Case

In 1989, a seven-judge Bench ruled that the Centre holds primary authority over mining regulation under the Mines and Minerals (Development and Regulation) Act, 1957, and Entry 54 of the Union List. States could only collect royalties, not impose additional taxes, as royalties were classified as taxes.

In 2004, a five-judge Bench suggested there might have been a typographical error in the 1989 ruling, indicating that royalties were not a tax. This discrepancy led to the current nine-judge review.

What did SC decide now?

• State Taxation Authority: The power to tax mineral rights is enumerated in Entry 50 of List II (State List), and Parliament cannot use its residuary power with respect to this subject matter. While Parliament can impose limitations on states’ mineral taxation via laws, the MMDRA has no specific provision imposing such limitations.

• While Parliament can impose limitations on states’ mineral taxation via laws, the MMDRA has no specific provision imposing such limitations.

• Regulatory Power: Entry 54 of List I (Union List) pertain to the Union’s power over minerals and is regulatory, not inclusive of taxing authority.

• Definition of “Land“: The term “land” in Entry 49 of List II includes mineral-bearing lands, granting states the competence to tax such lands.

• Overruling 1989 Judgment: The court overruled its 1989 judgment and held that royalty is not within the nature of a tax and does not come under the MMDRA.

• Clarification on Taxing Authority: The ruling clarifies that the power to impose taxes on mineral rights resides solely with the states, while Parliament may only impose limitations to prevent hindrances to mineral development.

• Ensuring Non-Obstruction: Parliament can set constraints on how states levy taxes on mineral rights to ensure mineral development is not obstructed, but cannot impose taxes directly.

What was the dissenting opinion of one of the judges?

Dissenting Opinion: One of the 9 bench judges, warned that allowing states to levy taxes on mineral rights might lead to attempts to impose taxes on lands and buildings under Entry 49 of List II, potentially disrupting the federal system and uniformity in mineral pricing and development.

Economic Consequences: States levying taxes on minerals could lead to legal uncertainty and adverse economic consequences, impacting metal development in India.

Difference between Royalty and a Tax:

Aspect | Royalty | Tax

Origin | Originates from an agreement between parties. | Imposed under a statutory power without reference to any special benefit conferred on the payer.

Nature | Compensation is paid for the rights and privileges enjoyed by the grantee. | Enforced by law and does not require the taxpayer’s consent.

Relationship | Direct relationship with the benefit or privilege conferred upon the grantee. | Imposed for public purposes without any specific benefit to the payer.

Specificity | Specific to the agreement and often linked to the exploitation of resources or usage of a privilege. | Part of the common burden is borne by all citizens, not linked to any specific privilege or benefit.

Quid Pro Quo | Involves a quid pro quo arrangement. | Does not involve a quid pro quo arrangement.

Mandatory Nature | Payment is linked to a specific benefit or privilege, and the arrangement is contractual. | Payment is mandatory and not linked to any specific privilege or benefit.

Precedents | Hingir-Rampur Coal Co. Ltd. vs. State of Orissa (1961), State of West Bengal vs. Kesoram Industries Ltd. (2004) | State of Himachal Pradesh vs. Gujarat Ambuja Cement Ltd. (2005), Jindal Stainless Ltd. vs. the State of Haryana (2017)

About the MMDRA Act:

Aspect | Details

What is MMDRA, 1957? | It is pivotal legislation in India governing the mining sector, undergoing multiple amendments for alignment with national economic and security interests.

Primary Objectives | Develop the mining industry, ensure mineral conservation, and bring transparency and efficiency to mineral exploitation.

2015 Amendment | Introduced key reforms such as the auction method, DMF, NMET, and penalties for illegal mining activities.

Auction Method: Mandated auctioning of mineral concessions to enhance transparency in allocation.

District Mineral Foundation (DMF): Established to benefit areas and people affected by mining.

National Mineral Exploration Trust (NMET): Created to boost mineral exploration activities.

Penalties for Illegal Mining: Implemented stringent penalties to curb illegal mining activities.

2021 Amendment | Removed the distinction between captive and merchant mines; ensured all private-sector mineral concessions were granted through auctions.

Captive Mines: Operated by companies to produce minerals exclusively for their own use, with the ability to sell up to 50% of their annual mineral production in the open market.

Merchant Mines: Operated to produce minerals for sale in the open market.

2023 Amendment | Aimed to strengthen exploration and extraction of critical minerals essential for India’s economic development and national security.

Key Amendments of 2023: Removed 6 minerals from the list of 12 atomic minerals limited to exploration by State agencies, empowered the government to exclusively auction mineral concessions for critical minerals.

Exploration Licenses: Introduced to attract foreign direct investment and engage junior mining companies in exploring deep-seated and critical minerals.

Focus: Reducing dependence on imports and encouraging private sector involvement to expedite exploration and mining of critical minerals.

Importance of Certain Minerals: Recognized the importance of minerals like lithium, graphite, cobalt, titanium, and rare earth elements for future technologies and India’s commitment to energy transition and net-zero emissions by 2070.

Central Government’s Role: Empowered to exclusively auction mining leases and composite licences for certain critical minerals.

State Governments’ Role: Granted the mining lease or composite licence after auctions conducted by the Central government.

Removal of Certain Minerals: Removed certain minerals from the list of atomic minerals such as lithium, beryllium, titanium, etc.

Insta Links:

• Amendment to Mines and Minerals (Development and Regulation) Act

• Offshore Areas Mineral (Development and Regulation) Amendment Bill, 2023

Mains Links:

Q1. Despite India being one of the countries of Gondwanaland, its mining industry contributes much less to its Gross Domestic Product (GDP) in percentage. Discuss. (UPSC 2021)

Q2. “In spite of adverse environmental impact, coal mining is still inevitable for development”. Discuss (UPSC 2021)