Supreme Court to pronounce verdict on July 25 on whether royalty on minerals is tax

New Delhi: The Supreme Court is scheduled to pronounce its verdict on Thursday on the hugely contentious issue of whether the royalty payable on minerals is a tax under the Mines and Minerals (Development and Regulation) Act, 1957, and if only the Centre is vested with the power to levy such exaction or states also have the authority to impose levies on mineral bearing land in their territory.

A nine-judge Constitution bench headed by Chief Justice DY Chandrachud, which reserved its verdict on March 14 after hearing a batch of 86 appeals filed by different state governments, mining companies and public sector undertakings for eight days, will pronounce the verdict.

According to the notice issued by the Supreme Court on its website, the bench, also comprising Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, will deliver the verdict at 10:30 a.m. on Thursday.

During the hearing, the top court had said the Constitution vests the power to impose tax on mineral rights not in Parliament alone but also the states and underlined that such authority should not be diluted.

Attorney General R Venkataramani, appearing for the Centre, had contended the Union had overriding powers with regard to taxing mines and minerals.

Solicitor General Tushar Mehta, also representing the Centre, said the entire architecture of the Mines and Minerals (Development and Regulation) Act (MMDRA) is the limitation on the states' legislative power to impose tax on minerals, and under the law, the central government has the power to fix royalty.

"The MMDRA wholly occupies the field and provides for a complete code covering every aspect of "regulation" and "development" of mines and minerals, including any Government exaction/ imposition in relation to mines and minerals thereby necessarily limiting state legislature’s competence to impose any other levy beyond what is stipulated under MMDRA and the rules framed thereunder," he had submitted.

Senior advocate Rakesh Dwivedi, appearing for Jharkhand, one of the petitioners, had submitted that royalty is not tax and states have the power to levy taxes on mines and minerals on the basis of Entries 49 and 50 of the State List. Under Entry 49, states have the power to levy taxes on lands and buildings, while Entry 50 allows states to impose taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.

The nine-judge bench of the apex court began hearing the complex matter on February 27 because of two apparently conflicting constitution bench decisions on the issue.

Royalties are payments that the user party makes to the owner of an intellectual property or real property asset.

The case has its roots in a dispute between India Cement Ltd and the Tamil Nadu government. India Cement secured a mining lease in Tamil Nadu and was paying royalty to the state government.

The state government then imposed a cess in addition to royalty on India Cement, which moved the Madras High Court against the measure, contending that a cess on royalty meant a tax on royalty which was beyond the remit of the state legislature.

The Tamil Nadu government argued the cess was by way of land revenue and on mineral rights, which it was empowered to impose.

The seven-judge bench of the Supreme Court decided in favour of India Cement in 1989. It ruled the Centre was the primary authority under the MMDRA with regard to regulating mines and mineral development.

It held that states can collect royalty under the MMDRA but cannot impose further tax on mining and mineral development. "......royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State Legislature....," the top court had held.

However, in 2004, a five-judge constitution bench, while hearing another dispute over imposition of cess on land and mining activities between the state of West Bengal and Kesoram Industries Ltd held there was a typographical error in the 1989 verdict and that royalty was not a tax.

It said the phrase "royalty is a tax" should instead be read as "cess on royalty is a tax" and that the 1989 judgement held that royalty is not a tax.

Over 80 more petitions were filed in the Supreme Court over the years, and since the India Cement matter was dealt with by a seven-judge bench, the matter was referred to a nine-judge bench to decide whether royalty is a type of tax or there was an error in the India Cement case judgement.

While Rakesh Dwivedi defended the states' right to impose tax on land and mineral activity during the 8-day hearing, a battery of senior advocates Harish Salve, Abhishek Singhvi, Arvind Dattar, AK Ganguly, Darius Khambata, Additional Solicitor General Aishwarya Bhati and SK Bagaria contested his contentions.

These advocates submitted that only Parliament can impose taxes on minerals by virtue of the MMDRA and states are completely denuded of the power to levy any taxes on mines and minerals.