The Supreme Court gave a historic decision on Thursday. The nine-judge bench of the Supreme Court, while giving its verdict with a majority of 8:1, said that royalty on minerals cannot be considered a tax. Along with this it was also said that state governments have the right to impose tax on minerals.
This decision of the Supreme Court is being considered a big victory for mineral-rich states like Odisha, Bengal, Jharkhand and Chhattisgarh. At the same time, this has dealt a big blow to the Central Government.
Chief Justice DY Chandrachud said, ‘Royalty cannot be considered a tax. In the India Cements case, what the court had said in its decision that royalty is tax, was wrong. Payment made to the government cannot be considered tax just because there is a provision in a law for recovery of its dues.
However, Justice BV Nagarathna, who was part of the bench of 9 judges, disagreed with this decision. He said that royalty is a kind of tax and states have no right to impose tax or any fee on minerals.
What was this whole matter? What did the Supreme Court say in its decision? And what will be the impact of this decision? Know every thing related to this…
What was this matter?
This entire matter was related to tax and royalty imposed on minerals and mineral land. The laws of state governments imposing royalty or tax on minerals and mineral land were challenged in the Supreme Court. States like Rajasthan and Uttar Pradesh had demanded imposition of cess on transportation of coal and coal-dust coming out of mines. At the same time, Bihar had also implemented similar laws in 1992 and 1994.
In 2011, a three-judge bench of the Supreme Court transferred it to a nine-judge bench. That’s because in 1989, a bench of seven judges had given a decision related to this.
In 1989, in the case of India Cements vs. Government of Tamil Nadu, the Supreme Court had considered royalty as tax under the Mines and Minerals (Development and Regulation) Act of 1957. Then the court had said that imposing tax or cess on such royalty is beyond the legislative competence of the state governments.
In 2011, a three-judge bench led by Justice SH Kapadia had decided several questions while sending the case to a nine-judge bench. The biggest question was whether royalty could be considered tax under the MMDRA of 1957 or not?
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What did the Supreme Court have to decide?
The court had to examine the scope of royalty set out in Section 9 of the MMDRA of 1957 and decide whether it could be termed a ‘tax’. Along with this, it was also to be seen whether the state governments have the right to make rules related to minerals under Section 15(1) of this law.
The court had to decide whether Entry 50 of List II of the Seventh Schedule of the Constitution gives the state government the right to impose tax on minerals? And can State Governments impose tax on land and buildings under Entry 49 of List II?
What decision did the Supreme Court give?
Apart from Chief Justice DY Chandrachud, the bench of 9 judges included Justice Hrishikesh Roy, Justice Abhay Oka, Justice BV Nagarathna, Justice JB Pardiwala, Justice Manoj Mishra, Justice Ujjal Bhuiyan, Justice SC Sharma and Justice AG Masih.
The nine-judge bench, while giving its verdict with a majority of 8:1, said that royalty on minerals and mineral land cannot be considered as tax. The bench overturned the 1989 Supreme Court decision.
The Supreme Court said that the MMDR Act of 1957 does not restrict the powers of the state government to impose taxes. Under Section 9 of that law, royalty cannot be considered tax.
The court said that entry 49 of List II covers all types of land, which also includes land containing minerals. Therefore the state government can impose tax on it. The court also said that the restrictions imposed by the Parliament in entry 50 II of List II in the law related to minerals cannot be applicable to entry 49.
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What did Justice Nagarathna say?
Justice Nagarathna is the only judge who disagreed with the decision. He said that royalty is a tax, hence according to the MMDR law, the state government cannot impose tax on minerals.
He also said that ‘land’ under Entry 49 of List II would not include land containing minerals, as this would lead to double tax on mineral rights.
Justice Nagarathna said that allowing states to impose taxes on minerals would lead to lack of uniformity on national resources. This can also give rise to forced competition among the states, which can lead to the collapse of the federal structure.
Now what next?
When will this decision of the Supreme Court be implemented? A decision on this is yet to be taken. Many states have already demanded implementation of this decision, while the Solicitor General requested to implement it from the date of the decision itself. Now the Supreme Court will hear this next Wednesday.
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What could be the impact of the decision?
– On states: With this decision of the Supreme Court, the revenue of mineral-rich states like Jharkhand and Odisha is expected to increase. Now state governments will also be able to make laws related to minerals and mines.
– At the centre: With this decision, the division of powers between the Center and the states in matters related to minerals has become clear. If the Supreme Court implements this decision in advance, then the Center may have to pay huge dues to the states.
– On Industry: However, the mining industry is worried about this decision. The mining industry is worried that this could lead to double taxation and increase the cost of mining.
How big is the mining industry in India?
According to the Ministry of Minerals, the number of mines in India in 2021-22 was 1,319. Whereas, in 2020-21 their number was 1,375. However, it does not include mines containing minor minerals, fuel minerals and nuclear minerals.
Maximum 263 mines are in Madhya Pradesh. After this, there are 147 mines in Gujarat, 132 in Karnataka, 128 in Odisha, 114 in Chhattisgarh, 108 in Andhra Pradesh, 90 in Rajasthan, 88 in Tamil Nadu, 73 in Maharashtra, 45 in Jharkhand and 39 in Telangana.
More than 97 percent of minerals were produced in only seven states. Highest mineral production takes place in Odisha. In 2021-22, 44.11% of minerals were produced in Odisha, 17.34% in Chhattisgarh, 14.10% in Rajasthan, 13.24% in Karnataka, 4.36% in Jharkhand, 2.44% in Madhya Pradesh and 1.45% in Maharashtra. In 2021-22, minerals worth more than Rs 2.11 lakh crore were produced in India.