ButSpeak.com
News which Matters.
The Supreme Court’s landmark ruling asserts that royalties on minerals are not taxes, empowering states like Jharkhand and Odisha to impose taxes on mining activities, a significant shift from previous interpretations.
In a significant development for India’s mineral-rich states, the Supreme Court has ruled that royalties on minerals should not be classified as taxes, thereby empowering states to impose taxes on mining operations. This landmark verdict, delivered on Thursday, marks a substantial shift from previous interpretations of mineral revenue regulations.
The judgment, delivered by a nine-judge bench led by Chief Justice DY Chandrachud, concluded that royalties paid for mineral extraction are not taxes but contractual payments made by lessees. The ruling overturns the 1989 decision by a seven-judge Constitution bench which had classified royalties as taxes. This earlier verdict had led to confusion and disputes, particularly affecting states like Jharkhand and Odisha, who have long sought clarity on their rights to levy taxes on mining activities.
Chief Justice Chandrachud explained that the 1989 ruling incorrectly categorized royalties as taxes. According to the current bench, royalties are distinct from taxes as they are compensatory payments for the right to mine, rather than government levies. The court found that Parliament does not have the power to tax mineral rights under Entry 50 of the Constitution, affirming that states retain the legislative competence to impose taxes on mineral rights and development under Entry 49.
The verdict has far-reaching implications for mineral-rich states. Jharkhand and Odisha, which had pressed for the decision, are poised to benefit from the newfound clarity. They had argued that the Centre’s previous tax levies on mineral extraction were unconstitutional and sought refunds for these payments. The Supreme Court’s ruling, however, may not be applied retrospectively as the Centre, represented by Solicitor General Tushar Mehta, opposed the retrospective application of the ruling. The Court has asked both the Centre and the states to submit written submissions on this matter, with a final decision expected on July 31.
The ruling is expected to resolve longstanding legal disputes about the power to levy taxes on minerals. Historically, the issue traces back to a dispute involving India Cement Ltd and the Tamil Nadu government, where a cess imposed on top of the royalty payments led to legal challenges. The Supreme Court’s 1989 decision had previously sided with India Cement, ruling that additional taxes on royalties were beyond state legislative powers. However, subsequent legal developments indicated potential errors in this decision, leading to the current clarification.
The Court’s decision represents a pivotal moment in the ongoing debate over mineral taxation in India, reaffirming states’ rights while clarifying the scope of federal and state powers in mineral resource management.