The Supreme Court of India ensured the rights of states to levy tax for the mines and mineral fields of respective jurisdiction prevailing over the Act of the Union government.
On 25th July, 2024, a 9 – Judge Constitution Bench of the Supreme Court pronounced its judgement that the States of the country alone have the power to levy tax on mineral rights. The verdict added further that the Union Law Mines and Minerals (Development and Regulation Act of 1957) does not limit such powers of the states. The Landmark Judgement made it clear that the royalty paid to the Government by the contractors, holding the mines and the mineral bearing lands by lease, is not tax but a “contractual consideration.” It is paid as per the mining lease agreement by the lessee to the lessor.
Case filed by India Cements Ltd.
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India Cements (Ltd); used the mines in Tamil Nadu, holding it by lease. It used to pay royalty to the Government of Tamil Nadu as a payment on mineral rights, as per the Parliamentary law. The Government of Tamil Nadu added cess tax to the amount. Following this levy, India Cements Ltd. filed a case in the Supreme Court stating that the State Government does not have the right to levy tax on mines and mineral bearing lands. It demanded refund of the tax amounts collected by the Government of Tamil Nadu. On behalf of the Government of Tamil Nadu it was argued that it had the right to levy tax for the utilisation of mineral bearing lands that are within its limits and jurisdiction.
Verdict of 7 – judge Bench
The case concerned was heard in 1989 by a 7 – judge Bench. It delivered judgement that the Union Government alone has the right to levy tax on lands that are inclusive of mines and quarries. It stressed that the State Governments have no right to levy taxes on them. It added further that the State governments are entitled only to receive the royalty paid by the lessees. It stated besides this that royalty itself is to be deemed as tax.
There was a dispute over this. It was being continuously debated whether royalty means tax or lease payments. The Union Government and several mine owners went on submitting appeal petitions stressing their view that the State Governments had no right to levy taxes. So far more than 80 petitions have been submitted seeking reconsideration and revocation.
The 9 – Judge Bench headed by CJI
In 2011, this case was transferred to a 9 – judge Constitution Bench headed by the Chief Justice of India, D.Y. Chandrachud. The case was being heard by the 9 – judge Bench. At this juncture, on 25.07.2024, the judgement was pronounced over this thirteen year long pending case. Eight judges including the Chief Justice unanimously delivered the judgement. The content was as follows:
“The Parliamentary Law, Mines and Minerals (Development and Regulation) Act 1957 (MMDR) has not limited the power of states to levy tax on the lands, bearing mines and quarries; but the State Assemblies acquire the right to levy tax on mines and quarries according to Article 246 of the Constitution. Therefore, through the MMDR Act of 1957, State Governments cannot be prevented from levying tax on mines and quarries located on the lands within their limits and jurisdiction.”
Royalty is not Tax
The Judgement states that the verdict pronounced in 1989 by the 7 – judge Bench of the Supreme Court that the royalty collected by the states is infact tax is erroneous and unacceptable. The royalty paid to the State Government by the people who held the mines on lease, is not tax but merely “contractual consideration” paid by the lessee to the lessor, under the mining lease.
Assent and dissent
Only Justice B.V. Nagarathna delivered a dissenting judgement but the majority (8:1) held that the states have the power to levy tax on mineral rights. Hence, it can certainly be hailed as a “Landmark Judgement.”
It is not clear whether the tax dues for the mineral bearing lands used so far should also be remitted by the lessees or whether this judgement could be adhered to only in future. The Supreme Court has informed that this would be explained soon.
This Landmark Judgement has explained precisely the rights of the State Government that cannot be seized under any circumstance. The judgement has highlighted the noble concept of Federalism. In the 7th schedule of the Constitution, the rights and powers of State governments have been clearly stated under three exclusive lists. This significant verdict makes all those particulars crystal clear. It has also set a good precedent by its legal explanation that the Parliament cannot seize the rights of the states by enacting an exclusive law, because all the rights of the states have been assured by the Constitution. This precise explanation makes this judgement truly historic. The case filed earlier by the Government of Tamil Nadu has become the point of origin for this landmark judgement.
Judgements – subject to changes
Another noteworthy aspect of this significant verdict is that it has placed upside down the judgement of the 7 – Judge Bench in 1989, which was contrary to this verdict. The new 9 – Judge Constitution Bench headed by the Chief Justice D.Y. Chandrachud has pronounced indeed a fair and just judgement. The eminent judges have also raised a question – “Do the State Governments not need enough financial base to implement public welfare schemes?” This meaningful question raised by the judges proves the accuracy of their understanding; their honesty and true care for social justice.
This landmark judgement has also made it clear that certain judgements of the past are likely to undergo changes in future. The State governments ruling by the mandate of people have undeniable rights to intervene immediately and set right whenever problems crop up revolving around issues related to mineral wealth of the country, the mines, mineral bearing lands and quarries. This has been highlighted by making the old judgement of 1989 totally null and void and no longer valid. This landmark judgement of 2024 foretells us that many legal judgements of today are subject to changes tomorrow.
