States have power to levy tax on mineral rights, rules Supreme Court

The royalty paid by mining operators to the Union government is not a tax and the states have the right to levy cesses on mining and mineral-use activities, the Supreme Court ruled on Thursday, Bar and Bench reported.

The judgement was delivered by a nine-judge bench headed by Chief Justice DY Chandrachud. Justice BV Nagarathna dissented from the majority.

The bench was deciding on whether state governments have the authority to regulate and tax activities relating to mines and minerals under the Mines and Minerals Development and Regulation Act.

Chandrachud said that royalty was not in the nature of tax. “We conclude that the observation in India Cements judgement stating that royalty is tax is incorrect,” Chandrachud was quoted as saying by Bar and Bench. “…payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears.”

Therefore, states were not divested of powers to levy cesses on activities related to mining, eight judges of the bench said.

In 1989, the Supreme Court held in the case involving cement manufacturer India Cements and the Tamil Nadu government that the royalty was a type of tax as per the Mines Act. Therefore, the state government did not have the power to add cesses on such royalties.

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