Mineral Area Development Authority v. Steel Authority of India
Supreme Court of India · 25 July 2024 · 9 judges · 2024 INSC 554
Royalty under Section 9 of the MMDR Act is not a tax; States can tax mineral rights under Entry 50 and mineral-bearing land under Entry 49 of List II, and the MMDR Act imposes no limitation on that power.
Facts
Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 requires a mining lessee to pay royalty. In India Cement Ltd. v. State of Tamil Nadu a seven-judge Bench held that royalty is a tax, while in State of West Bengal v. Kesoram Industries Ltd. a Constitution Bench treated that statement as an inadvertent error and held royalty is not a tax. States then levied taxes on mineral-bearing land using mineral value or royalty as the measure, and some imposed cesses and fees on minerals. These levies were challenged as beyond State competence. In the lead appeal, the Patna High Court, relying on India Cement, struck down a Bihar tax on land used for mining. On 30 March 2011 a three-judge Bench, noting the conflict, referred the questions to nine judges.
Questions before the Court
- Whether royalty determined under Section 9 of the MMDR Act is in the nature of a tax.
- What is the scope of 'taxes on mineral rights' in Entry 50 of List II, and whether the MMDR Act, in particular Section 9, imposes 'any limitations' on that power.
- Whether States can tax mineral-bearing land under Entry 49 of List II using the yield of the land, such as mineral produce or royalty, as the measure of tax.
- Whether Kesoram could be read as departing from India Cement.
What the Court held
- Royalty is not a tax. It is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights, and the liability arises from the lease. Payments to the Government do not become a tax because the statute provides for their recovery as arrears. Dead rent is likewise not a tax.
- The power to tax mineral rights vests in State legislatures under Entry 50 of List II. Parliament cannot tax mineral rights under Entry 54 of List I, a general entry, or under its residuary power.
- Parliament may impose 'any limitations', including restrictions, conditions, principles or even a prohibition, on Entry 50 by a law relating to mineral development, but the MMDR Act as it stands, including Sections 9, 9A, 9B and 9C, imposes none.
- Mineral-bearing land is 'land' under Entry 49 of List II. Its yield, in terms of the quantity of mineral produced or royalty, can be used as the measure of a tax on land. Entries 49 and 50 operate in distinct fields, and Entry 50 limitations do not operate on Entry 49.
- India Cement, Orissa Cement, Federation of Mining Associations of Rajasthan, Mahalaxmi Fabric Mills, Saurashtra Cement, Mahanadi Coalfields and P Kannadasan were overruled to the extent of the observations made. Goodricke was clarified.
Why it matters
The nine-judge Bench resolves the conflict between India Cement and Kesoram by holding that royalty is not a tax, and overrules India Cement and later decisions to that extent. It confirms the States' power to tax mineral rights under Entry 50 and mineral-bearing land under Entry 49 of List II, holds that the MMDR Act imposes no limitation on that power, and explains that Parliament may still impose limitations, even a prohibition, by law relating to mineral development.
In the Court's words
Copied from the official judgment; each passage links to its page.
“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 Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears;”
“Entry 50 of List II does not constitute an exception to the position of law laid down in M P V Sundararamier (supra). The legislative power to tax mineral rights vests with the State legislatures. Parliament does not have legislative competence to tax mineral rights under Entry 54 of List I, it being a general entry. Since the power to tax mineral rights is enumerated in Entry 50 of List II, Parliament cannot use its residuary powers with respect to that subject-matter;”
“Since royalty payable under Section 9 is not a tax on mineral rights, any limitation on the enhancement of the rates of royalty is not the imposition of a tax under Entry 50 of List II. While royalty flows from the exercise of proprietary rights, taxes flow from the sovereign's right to tax persons, objects and transactions. Section 9 does not expressly impose any limitations on the powers of the State to tax mineral rights.”
“The State legislatures have legislative competence under Article 246 read with Entry 49 of List II to tax lands which comprise of mines and quarries.”
Provisions interpreted
- Section 9, Mines and Minerals (Development and Regulation) Act, 1957
- Entry 50, List II, Seventh Schedule, Constitution
- Entry 49, List II, Seventh Schedule, Constitution
- Entry 54, List I, Seventh Schedule, Constitution
- Article 246, Constitution
Related judgments
- Overrules India Cement Ltd. v. State of Tamil Nadu (1989)“we conclude that the observation in India Cement (supra) to the effect that royalty is a tax is incorrect.” (page 83)
Case and bench
- Parties
- Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr.
- Case
- Civil Appeal Nos. 4056-4064 of 1999 (with connected civil appeals, writ petitions, special leave petitions and transfer petitions)
- Decided
- 25 July 2024
- Bench
- Dr Dhananjaya Y Chandrachud, CJI, Hrishikesh Roy, Abhay S Oka, B.V. Nagarathna, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, Augustine George Masih
- Opinions
- Majority 8:1. Opinion by Dr Dhananjaya Y Chandrachud, CJI, for himself and seven other judges; B.V. Nagarathna, J. dissented, holding that royalty is a tax or exaction, that Section 9 of the MMDR Act is a limitation under Entry 50 of List II, and that India Cement was correctly decided.
Questions on this case
5 questions in live Law Maker papers mention this case. Practise them with the landmark judgments questions.