Supreme Court rules that royalty on minerals is not tax
File photo of Indian Supreme Court.
A nine-judge Constitution Bench led by Chief Justice of India D.Y. Chandrachud on Thursday (July 25) ruled that the power of State Legislatures to tax mining lands and quarries is not limited by the Parliament's Mines and Minerals (Development and Regulation) Act of 1957. The judgment was delivered witha 8:1 majority.
Chief Justice Chandrachud, while reading out the verdict himself, said that the parliament does not have the power to tax mineral rights under Entry 50 of List II of the constitution.
The List II of the seventh schedule of Indian constitution lays out the rights of states within the country's federal structure.
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The entry 50 in the List two states that the "taxes on mineral rights are subject to any limitations imposed by parliament by law relating to mineral development".
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The apex court has ruled that the rights of states go beyond the entry 50 of List II of constitution's seventh schedule, and are not limited to it. The judgment said that the parliament, through the MMDR Act, cannot limit the power of the State to legislate on the taxation of mines and quarries within their jurisdiction.
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The majority judgment pronounced by Chief Justice Chandrachud said that State Legislatures derive their power to tax mines and quarries under Article 246 read with Entry 49 (tax on lands and buildings) in the State List of the Seventh Schedule of the Constitution.
Justice B.V. Nagarathna gave a dissenting opinion.
"Mineral bearing lands fall within the description of 'lands' in Entry 49," CJI Chandrachud held. The Entry 49 describes "taxes on lands and buildings".
'Royalty is not tax,' Supreme Court rules
The majority verdict said that royalty paid by the entities who lease mines to the government is not tax.
"Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights," CJI Chandrachud noted.
The tax payable to the State Government depends on the "yield" of the mineral-bearing land, the judgment added.
The other judges in the bench included Justices Hrishikesh Roy, Abhay S. Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih.
(With inputs from agencies)