Centre files curative petition against mineral tax judgment before Supreme Court

The Centre has filed a curative petition before the Supreme Court of India against its nine-judge bench decision dated July 25, 2024 which declared that States have got legislative competence to levy tax on mineral-bearing lands. The court explained that the tax is different from royalty, as it is just a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights.

Solicitor General Tushar Mehta informed a bench of Justices Vikram Nath and Sandeep Mehta of this development while he was appearing in an unrelated case. He told the bench that the petition was filed “with all seriousness”.

By a majority view of 8:1, court has upheld the power of the states to impose tax and the Mines and Minerals (Development and Regulation) Act 1957 does not limit the power of the States in this regard.

The judgment comes as a big boost for mineral rich States, like Karnataka, Odisha, Andhra Pradesh, Jharkhand, West Bengal Chhattisgarh, Madhya Pradesh, and Rajasthan. It was also likely to settle the tussle between the Centre and states for revenue from mineral bearing land. Justice BV Nagarathna, however, differed with the majority view and held that royalty is in nature of tax and exaction. She declared that the Centre possessed the exclusive right to tax mineral rights in the country. Justice Nagarathna said that if States were given the authority to impose additional levy on the royalty paid by the miners, then it would lead to an anomalous situation.

Supreme Court had clarified that royalty paid for mining is not a tax but a contractual payment for mineral extraction, and this distinction allowed states to levy additional taxes or surcharges on mineral rights, providing them with a significant revenue source. It had further said that Parliament retains the authority to impose limits on states’ taxation powers through legislation, though no such restrictions had been enacted under the Mines and Minerals (Development and Regulation) Act (MMDRA) of 1957.

Court by the judgment had resolved a long-standing dispute that stemmed from conflicting judgments by the Supreme Court. In 1989, a seven-judge bench had ruled that the Centre held primary regulatory authority under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and that states could collect royalties but not impose additional taxes or cess on mining and mineral development. However, a five-judge bench in 2004, while hearing a similar dispute had noted a typographical error in the 1989 judgment, clarifying that “royalty is not a tax” but “cess on royalty is a tax”. 

After the judgement was pronounced, the Supreme Court in August last year also had rejected the Centre' submission made before it on prospective application of its judgment that states are entitled to collect royalty on minerals. "States can demand taxes but the demand shall not operate on transactions made prior to April 1, 2005", a Chief Justice of India led 9-judge bench has ordered allowing mineral rich states to collect taxes from the Union government for the last 19 years.

Notably, the central government had urged the Supreme Court to declare that the said judgment shall apply only “prospectively". Solicitor General Tushar Mehta had submitted before a 9-judge Constitution bench led by Chief Justice of India DY Chandrachud that a preliminary estimate of the financial impact of the judgment due to past State levies which may become due on the public sector units engaged in mining, and in production activities dependent on minerals was approximately Rs 70,000 crore.