Mining based industry or project in the country is taxed centrally. States could only collect ‘royalty’ (property fee). On July 25, a 9-judge Constitution Bench of the Supreme Court in the case of ‘Mineral Area Development Authority v M/s Steel Authority of India’ clarified that states have the power to levy taxes on mining operations and collection of ‘royalties’ from mining lease holders is entirely separate from the power to levy taxes. is and does not interfere with it. Hence states can now collect additional revenue in the form of taxes on mining activities and the land used for these activities. Let’s know about this decision.
What exactly is the case?
In 1989, a seven-judge bench in ‘India Cement Ltd v State of Tamil Nadu’ ruled that the Tamil Nadu government had struck down the cess imposed on mining and clarified that states could only collect royalty from mining. Also citing Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDRA) ‘royalty’ is a tax. Such an opinion was expressed. Therefore, it was debated for a decade whether it was a typographical error or not. In 2004 State of West Bengal vs Kesoram Industries Ltd. A small Constitution Bench in the case observed that while dealing with cess on land and mining, instead of “royalty is a tax”, the sentence should read “cess on royalty”. 2011 Supreme Court took notice of this confusion. However, by then many other cases were affected by this verdict. The case, which started in 1992 over taxes imposed by the state on mining operations in Bihar, was eventually referred to a nine-judge bench.
Two schools of thought among judges on the decision?
Mineral Area Development Authority Vs. M. S. The Steel Authority of India case was heard before a 9-judge Constitution Bench. The above decision was given by a vote of 8 to 1. During the hearing, the Constitution Bench clarified that royalty and tax are different. It was being discussed for the last 25 years. There is clarity in this regard in the Seventh Schedule of the Constitution of India. Under it, states are empowered to levy taxes on land, buildings and projects related to mineral development, like the Centre.
The ‘MMDRA’ Mines and Minerals (Regulation and Development) Act, 1957 does not restrict the power of States to tax mineral rights. So royalty is not a tax. Doing so would have meant that Parliament imposed restrictions on the tax system in relation to the State’s mineral development activities. Justice Nagaratna disagreed on this. According to him, after the enactment of the Mines and Minerals (Regulation and Development) Act, 1957, the states were denied the right to levy taxes on mining. Because they are empowered to collect taxes in the form of royalty.
Why is ‘royalty’ not a tax?
This judgment given by the Supreme Court focuses on two major issues. Eight judges agreed while one judge held that royalty is a tax. An important first order issue is the provisions under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957. Accordingly, the mining lease holders are required to pay a ‘royalty’ (ownership fee) to the landowner or similar body in respect of any mineral extracted. The ‘royalty’ is based on an agreement between the mining lease holder and the land lessor. Even though the state government is the grantor of the lease, royalty is collected excluding other taxes. So royalty and tax are different. This is what the court says. On the other hand, Justice Nagaratna held that royalty should be treated as a tax under ‘MMDRA’. The objective of ‘MMDRA’ is to promote mineral development and mining activities in the interest of mineral development in the country. This objective would be defeated if the states were empowered to impose additional duties and cesses (different types of taxes) on top of the royalties they collect.
Power of states to levy mineral development tax?
States in the country where mining based industries or projects are underway. At that point only royalty is controlled by the state. But since other taxes are controlled by the Centre, it has often created a conflict situation. The Seventh Schedule of the Constitution of India deals with the power given to the states in relation to mining. Accordingly, the States are empowered to enact laws relating to mineral taxation subject to laws made by Parliament relating to mineral development. Along with the powers to regulate mineral development and development in public interest. This was also argued in court.
What will benefit the states?
Excavation is going on in mines covering more than two lakh hectares in various states of the country. Most of these mines are in Odisha, Jharkhand, Chhattisgarh, Tamil Nadu, Maharashtra etc. From this business with a turnover of thousands of crores, no funds were being deposited in the state exchequer apart from royalty and social responsibility funds provided by the related company. Due to this decision, additional tax will now accrue in the state exchequer. The area where mineral mining is going on. This tax can be used to compensate for the loss of that area. Along with this, a new source of revenue has been generated for the development work of the state.
