Nine-judge Supreme Court bench upholds right of states to levy royalty on mineral tax

New Delhi: The Supreme Court on Thursday upheld state governments’ right to levy royalty on mineral-bearing land, reasoning they had competence and power to do so. This will benefit mineral-rich states like Odisha, Jharkhand, Bengal, Chhattisgarh, Madhya Pradesh, and Rajasthan.

The landmark 8:1 verdict was delivered by a bench led by Chief Justice DY Chandrachud, which ruled ‘royalty’ is not the same as ‘tax’; Justice BV Nagarathna delivered the dissenting verdict.

Justice Nagarathna said allowing states to tax mineral rights would lead to “unhealthy competition between states to derive revenue… the national market could be exploited… this would lead to a breakdown of the federal system, in the context of mineral development”.

Minutes earlier the majority verdict said “royalty is a contractual (consideration) paid by lessee to lessor” and that Parliament “does not have power to tax mineral rights under Entry 50, List I”.

The eight-judge verdict said there is no provision in the MMDR (the Mines and Minerals (Development and Regulation) Act) that “imposes limitations on state to tax minerals”.

“We hold that both royalty and debt rent don’t fulfil the ingredients of tax,” the Chief Justice said.