Politics

Supreme Court Rules Royalty on Minerals Is Not a Tax: Key Implications for State and Central Taxation

The Supreme Court on Thursday delivered a historic decision that severely damaged the Center’s argument that the royalty paid on minerals is not a tax. In agreement with the majority ruling, the nine-judge bench, presided over by Chief Justice C.J. Chandrachud, comprised Justices Hrishikesh Roy, A S Oka, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih.

Judge B V Nagarathna was the only one to disagree. Reading the decision aloud for himself and the other seven judges, Chief Justice Chandrachud said that Parliament lacks the authority to tax mineral rights in accordance with Entry 50 of List II of the Constitution. Entry 50 deals with taxes on mineral rights, subject to parliamentary restrictions on the exploitation of minerals. The CJI also pointed out that the 1989 ruling by the Supreme Court—which categorized royalty as a tax—was flawed.

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The controversial question of whether the royalty payment on minerals falls under the purview of the Mines and Minerals (Development and Regulation) Act, 1957 as a tax is addressed in the ruling. It also makes clear whether states may additionally impose taxes on lands that include minerals within their borders, or if the Center alone is able to impose these kinds of fees. This decision establishes the balance of power between the federal government and the states with regard to mineral rights and validates the states’ authority to levy taxes in this domain.