‘Royalty Is Not the Same As Tax’: Supreme Court Revokes Its 1989 Verdict

The Supreme Court overturned its previous ruling and affirmed the authority of states to levy royalties on mining and mineral-use activities. In an 8:1 judgment led by Chief Justice of India DY Chandrachud, the court clarified that 'royalty' is not the same as 'tax' and said that states have the competence and power to impose royalty. J Justice BV Nagarathna provided the sole dissenting opinion in the case.

The verdict marks a significant victory for mineral-rich states like Odisha, Bengal, Jharkhand, and Chhattisgarh, among others.

"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," Chief Justice said.

"We hold that the state legislature is competent to design a levy under Entry 49 of List 2 to tax lands that include mines and quarries," the Chief Justice stated. The majority of the judges affirmed that states retain the authority to impose cesses on mining and related activities.

"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 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.

In 1989, the Supreme Court decided in the case of India Cements vs Tamil Nadu that royalty is considered a 'tax' under the Mines and Minerals (Development and Regulation) Act (MMDRA), and that states did not have the legislative authority to levy cesses on this royalty.