A nine-judge Constitution Bench of the Supreme Court ruled on Thursday that royalty paid by mining operators to the Central government is not a tax and that states retain the authority to impose cesses on mining and mineral-use activities. This decision benefits mineral-rich states such as Odisha, Jharkhand, Bengal, Chhattisgarh, Madhya Pradesh, and Rajasthan.

The 8:1 judgment was delivered by Chief Justice of India (CJI) DY Chandrachud, with Justices Hrishikesh Roy, Abhay S Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma, and Augustine George Masih. Justice Nagarathna was the sole dissenter.

The Court ruled that the Mines and Minerals (Development & Regulation) Act (Mines Act) does not strip States of their power to levy taxes on mineral rights. This ruling overturns the Court’s 1989 decision, which had classified royalty as a ‘tax’ under the Mines Act and deemed the imposition of cesses on such royalty beyond the states’ legislative power.

Reading out the majority judgment, CJI Chandrachud said:

“Royalty is not in the nature of tax … We conclude that the observation in India Cements judgment stating that royalty is tax is incorrect … Payments made to the government cannot be deemed to be a tax merely because a statute provides for its recovery in arrears.”

“The legislative power to tax mineral rights lies with the State legislature and the Parliament does not have the legislative competence to tax mineral rights under Entry 50 of List 1 since it is a general entry and Parliament cannot use its residuary power regarding this subject matter … State legislature has the legislative competence under Article 246 read with Entry 49 of List 2 to tax mineral bearing lands,” the majority ruled.

Justice BV Nagarathna, however, disagreed on both aspects.

“I hold royalty is in nature of the tax. States have no legislative competence to impose any tax or fee on mineral rights. Entry 49 is not related to mineral bearing lands. I hold India cement decision was correctly decided.”

The case addressed whether state governments have the powers to tax and regulate mining and mineral activities due to the enactment of the Mines and Minerals (Development & Regulation) Act (Mines Act). This was the oldest pending nine-judge Bench case before the Supreme Court, with judgment reserved on March 14.

The Centre contended that states lack the authority to tax mineral-bearing lands, adding that royalties collected by the Centre are eventually redistributed to the states.

Solicitor General Tushar Mehta argued that national uniformity in mineral industry development is crucial, warning that fragmented state-level levies could hinder mineral development and systemic utilisation for the public good.

However, the majority of the nine-judge Bench disagreed with the Central government’s position.