Royalty is not tax, a nine-judge Supreme Court bench led by Chief Justice DY Chandrachud held today, with one dissenting view.
In an order that would have significant financial repercussions on mining within a federal equation, the SC in an 8:1 majority held that the Mines and Minerals (Development and Regulation) Act 1957 did not limit states’ powers to levy a tax above the royalty miners paid, overruling an earlier SC order in favour of India Cements.
Royalty, as well as dead rent, have been interpreted as “a contractual consideration paid by the lessee under the mining lease”. The majority, led by the CJI, held that entry 54 of List 1 is an entry distinct from taxing entries and thus does not include the power of taxation, vesting the power to levy taxes on mineral rights with the states.
Further, the bench believes mining leases count as “land” which is entered as item 49 in List 2 of the Constitution, or the list of areas left for the states to manage. The majority held there is no specific provision in the MMDR Act imposing limitations on such powers, and further Royalty under Section 9 of the MMDR Act was not in the nature of a tax.
However, in discussion with industry sources, BigMint learnt that market players are yet to have a clarity on it as this may not help in creating a level playing field for all the states in India. Additionally, any new tax imposition will increase the cost of production of ore and lift the prices. India’s iron ore production increased by 10% to 280 million tonnes (mnt) in FY’24 and, as per BigMint data
A TOI news report says Assam expected more than Rs 4,500 crore (as on 31 July, 2002) from a state-imposed tax on crude oil, Jharkhand expects Rs 10,558 crore. With so much at stake, the bench has decided to clarify next week whether this judgment would only apply prospectively or could also a retrospective bearing.
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