Royalty Payable on Extracted Mineral is Not a Tax Says Supreme Court

New Delhi: The Supreme Court in a majority judgement on Wednesday upheld that the States have the power to levy royalty tax on mineral-bearing lands.

In a 8:1 landmark judgement, a nine-judge Constitution bench held that royalty payable on minerals is not a tax.

Chief Justice D.Y. Chandrachud, delivering the verdict on behalf of himself and seven other judges of the bench, ruled that Parliament does not have the authority to tax mineral rights under Entry 50 of List II of the Constitution.

Entry 50 of List II pertains to taxes on mineral rights, subject to any limitations imposed by Parliament through laws related to mineral development.

Reading the operative part of the majority verdict, the CJI said the 1989 verdict of the apex court's seven-judge Constitution bench, which had held that royalty is tax, is incorrect.

B V Nagarathna has given dissenting views in the judgement and said that the states do not have the legislative competence to levy taxes on mines and minerals bearing lands.

The bench decided the hugely contentious issue of whether the royalty payable on minerals is a tax under the Mines and Minerals (Development and Regulation) Act, 1957, and if only the Centre is vested with the power to levy such exaction or states also have the authority to impose levies on mineral bearing land in their territory.

"The legislative power to tax mineral rights lies with the state legislature. Parliament does not have the legislative competence to tax mineral rights under Entry 50 of List I, as it is a general entry. Parliament cannot use its residuary power regarding this subject matter. The state legislature has the legislative competence under Article 246, read with Entry 49 of List II, to tax mineral-bearing lands," the majority ruled.

(with inputs from agency)