In a setback to the Centre, the Supreme Court has ruled that states have the authority to impose taxes on mines and lands that contain minerals under the Constitution.
On Thursday (July 25), in an 8:1 majority verdict, a nine-judge Constitution bench decided that royalty paid for minerals is not considered a tax.
Chief Justice D Y Chandrachud, speaking for himself and seven judges of the bench, stated that Parliament does not have the power to tax mineral rights under Entry 50 of List II of the Constitution.
Here are five reasons the Supreme Court gave while ruling in favour of states in the case regarding royalty and tax on minerals:
1. Legislative competence of states: The Supreme Court held that states have the legislative competence to impose taxes on mines and mineral-bearing lands under the Constitution. The Court emphasised that the Parliament does not have the legislative competence to tax mineral rights under Entry 50 of List I.
2. Royalty is not a tax: The Court said that the royalty that is paid on minerals is not a tax. It noted that royalty is a payment given as consideration for the extraction of minerals from the land, not an imposition for public purposes. This distinction is crucial because it determines the legislative competence to impose such charges.
3. 1989 verdict incorrect: The majority verdict held that the 1989 Supreme Court judgment, which stated that royalty is a tax, was incorrect. This previous interpretation was overruled, reinforcing that royalty is not a tax and thus within the states’ legislative powers to levy.
4. Difference between royalty and tax: The Court explained the conceptual differences between royalty and tax. Royalty is paid as consideration for parting with rights to minerals and is determined by the quantity of minerals removed under a mining lease. In contrast, a tax is imposed for public purposes and is generally levied with respect to a taxable event.
5. States’ authority under Article 246 and Entry 49 of List II: The Court stated that the state legislature has the legislative competence under Article 246, read with Entry 49 of List II, to tax mineral-bearing lands. This confirms that states have the authority to levy cess on mining or related activities without being denuded of their powers by Parliament.
With inputs from PTI
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5 reasons SC gave while ruling in favour of states in royalty, tax on minerals case
