Synopsis: The Supreme Court, in a landmark decision on July 25, ruled that states have the authority to levy taxes on mineral-bearing lands. The Court also determined that royalties paid to the Centre are contractual payments, not taxes. This overturns a 1989 ruling which deemed mineral royalties as taxes.
In a significant judgment, the Supreme Court of India has clarified the distinction between royalty and tax concerning mineral rights, enhancing states' authority to levy charges on mineral-bearing lands. On July 25, a nine-judge constitution bench delivered a majority verdict overturning a 1989 decision which held that royalties on minerals constitute a tax.
The Court's ruling, by an 8:1 majority, established that states possess the power to levy taxes on lands bearing minerals. The verdict emphasized that royalties paid by mining companies to the central government should be regarded as contractual payments rather than taxes. This marks a pivotal change from the previous interpretation, reshaping the fiscal landscape of mineral royalties.
"We are of the opinion that royalty is not a tax, and as such, a cess on royalty, being a tax on royalty, is beyond the competence of the State Legislature because the Central Act covers the field," stated the bench. This clarification delineates the roles of state and central governments concerning mineral royalties, ensuring a more structured fiscal framework.
The 1989 decision by a seven-judge Constitution bench had classified royalties on minerals as taxes, which significantly impacted the fiscal autonomy of states regarding mineral exploitation. By overturning this decision, the Supreme Court has reaffirmed the states' rights to manage and benefit from their mineral resources more effectively.
This ruling comes as a relief to state governments, which had been in a legal quandary about their authority to impose levies on mineral-bearing lands. With the new judgment, states can now confidently assert their right to tax these resources without conflicting with central regulations.
The court's decision underscores the contractual nature of royalties, differentiating them from traditional taxes and placing them within the scope of agreements between mining entities and the government. This distinction is crucial for the legal and administrative processes surrounding mineral extraction and revenue collection.
Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Readers are advised to consult legal experts or relevant authorities for specific guidance. The views expressed are based on the information available at the time of writing and are subject to change.
