One of the most important matters in the recent times has been decided by a nine-judge bench of the Hon’ble Supreme Court in Mineral Area Development Authority v. SAIL, 2024 INSC 554. It deals with the important issue of the distribution of legislative powers between the Union and the States as regards taxation of mineral rights. It also decided on the nature of royalty insofar as it is applicable to minerals.
The issue of royalty came into play in the
context of its classification. It royalty is classified as a tax, prior
decisions have held that State legislatures lacked competence to levy taxes on
mineral rights as they were dealt with under Entry 54, List I, VII Schedule, where
Union had the exclusive competence. Some decisions held that royalty was not
tax and therefore the State legislatures were competent to make laws further to
Entry 49, List II, VII Schedule, where States had the exclusive competence. This
conflict is the subject of decision of the nine judge Bench of the Supreme Court.
Initially, about 11 questions were recorded by
a three judge Bench as having to be determined. During the hearing before the nine judge Bench, there was
consensus between the counsels for the Petitioners and the Respondents as to
the questions that were to be determined by the nine judge-Bench. Union of
India filed an affidavit stating that Entry 53, List I, Schedule VII which
related to mineral oils/ petroleum/ oil fields, was not covered in the issues
before the court. So, the Supreme Court did not discuss these aspects in the
decision. The questions to be determined reduced from 11 to merely five. Of the
nine judges, Justice Ms. Nagaratna dissented. The majority view was penned by Chief
Justice Mr. Chandrachud.
The court’s ultimate determination vis-à-vis these
questions as contained in Para 342 of the Majority judgment is provided below:
Question a. What is the
true nature of royalty determined under Section 9 read with Section 15(1) of
the MMDR Act? Whether royalty is in the nature of tax;
Finding:
“a. Royalty is not a tax. Royalty
is a contractual consideration paid by the mining lessee to the lessor for
enjoyment of mineral rights. The liability to pay royalty arises out of the
contractual conditions of the mining lease. The payments made to the Government
cannot be deemed to be a tax merely because the statute provides for their
recovery as arrears;”
b. What is the scope of Entry
50 of List II of the Seventh Schedule? What is the ambit of the limitations
imposable by Parliament in exercise of its legislative powers under Entry 54 of
List I? Does Section 9, or any other provision of the MMDR Act, contain any
limitation with respect to the field in Entry 50 of List II?
c. Whether the expression
“subject to any limitations imposed by Parliament by law relating to mineral
development” in Entry 50 of List II pro tanto subjects the entry to Entry 54 of
List I, which is a non-taxing general entry? Consequently, is there any departure from the
general scheme of distribution of legislative powers as enunciated in M P V
Sundararamier (supra)?
Determination: “b. Entry 50 of
List II does not constitute an exception to the position of law laid down in M
P V Sundararamier (supra). The legislative power to tax mineral rights vests
with the State legislatures. Parliament does not have legislative competence to
tax mineral rights under Entry 54 of List I, it being a general entry. Since
the power to tax mineral rights is enumerated in Entry 50 of List II, Parliament
cannot use its residuary powers with respect to that subject-matter;”
c. Entry 50 of List II envisages
that Parliament can impose “any limitations” on the legislative field created
by that entry under a law relating to mineral development. The MMDR Act as it
stands has not imposed any limitations as envisaged in Entry 50 of List II;
d. The scope of the expression
“any limitations” under Entry 50 of List II is wide enough to include the
imposition of restrictions, conditions, principles, as well as a prohibition;
d. What is the scope of Entry
49 of List II and whether it covers a tax which involves a measure based on the
value of the produce of land? Would the constitutional position be any
different qua mining land on account of Entry 50 of List II read with Entry 54
of List I?
e. Whether Entry 50 of List II
is a specific entry in relation to Entry 49 of List II, and would consequently
subtract mining land from the scope of Entry 49 of List II?”
Determination: “f. The yield of
mineral bearing land, in terms of the quantity of mineral produced or the
royalty, can be used as a measure to tax the land under Entry 49 of List II.
The decision in Goodricke (supra) is clarified to this extent;
g. Entries 49 and 50 of List II
deal with distinct subject matters and operate in ifferent fields. Mineral
value or mineral produce can be used as a measure to impose a tax on lands
under Entry 49 of List II;
h. The “limitations” imposed by
Parliament in a law relating to mineral development with respect to Entry 50 of
List II do not operate on Entry 49 of List II because there is no specific
stipulation under the Constitution to that effect;”
Prior Decisions: “i. The decisions in India
Cement (supra), Orissa Cement (supra), Federation of Mining
Associations of Rajasthan (supra), Mahalaxmi Fabric Mills (supra), Saurashtra
Cement (supra), Mahanadi Coalfields (supra), and P Kannadasan (supra)
are overruled to the extent of the observations made in the present case.”
The minority judgment of Justice Ms. BV Nagarathna
held that royalty was in the nature of a tax, that Sections 9, 9A and 25 of the
Mines and Minerals (Development and Regulation) Act, 1957 denuded/ limited the
scope of Entry 50, List II and that taxes on lands and buildings contemplated taxes
directly levied on the land as a unit and did not include mineral bearing lands
within its scope. The minority judgment recognized that Entry 50, List II was
the only entry in Lists I and II which subjected the taxing power of the States
to limitations imposed by the Parliament by law relating to mineral
development.
The Supreme Court Observer (SCO) has an excellent page on the decision, providing links to the hearing transcripts and prior decisions. Link to SCO page on the case is here. Happy reading!
