If the judgment becomes operational retrospectively, mineral-rich states like Odisha, Chhattisgarh, Jharkhand, Andhra Pradesh, Goa, Madhya Pradesh and Karnataka would be richer by thousands of crores. Solicitor general Tushar Mehta and senior advocates A M Singhvi and Arvind Datar pleaded with the court to make the judgment operate prospectively, but senior advocate Rakesh Dwivedi, who had argued for mineral-rich states, objected. SC said it would hear the parties on Wednesday on this issue.
However, in an important clarification, SC said this ruling would not be applicable to oilfields, mineral oil resources, petroleum and petroleum products as the Union govt contended that these petitions did not question the Centre’s exclusive jurisdiction, as defined by Entry 53 of List I of Seventh Schedule, over these assets. Dwivedi and other counsel for states also did not address arguments on the issue.
In the eight to one ruling, CJI D Y Chandrachud wrote the main judgment with the consent and agreement of Justices Hrishikesh Roy, A S Oka, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish C Sharma and A G Masih.
This judgment settles a 25-year-old question raised by a bunch of petitions, which grew in numbers over the years and sought enforcement of states’ right to collect royalty on extracted minerals as also levy tax on mineral-bearing land. This was opposed by the Union govt, which cited the Mines and Minerals (Development and Regulation) Act provision to argue that royalty was also a tax which could not be levied by the state on minerals which fall under central jurisdiction.
The majority judgment settled the issue by ruling that “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 govt cannot be deemed to be a tax merely because the statute provides for their recovery as arrears,” the CJI said in his 200-page judgment.
Accepting Dwivedi’s arguments on behalf of states and after examining the interplay of entries in the Union and State Lists in the Seventh Schedule, SC said, “We hold that both royalty and dead rent do not fulfil the characteristics of tax or impost.”
While overruling a large number of past constitution bench judgments of SC, the nine-judge bench gave another significant relief to states to tax mineral-bearing land, which, too, was opposed by the Centre: whether a state has the power to tax mineral-bearing tracts in its jurisdiction. “State legislatures have legislative competence under Article 246 read with Entry 49 of List II to tax lands which comprise of mines and quarries. Mineral-bearing land falls within the description of ‘lands’ under Entry 49 of List II,” the court said.
“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 (state subject). Entries 49 and 50 of List II deal with distinct subject matters and operate in different fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II,” it said.
SC said though Entry 50 of List II allows Parliament to impose by law any limitation, restriction which can even be prohibition, relating to mineral development, the MMDR Act as it stands has not imposed any limitation as envisaged in Entry 50 of List II.