Supreme Court Declares Royalty on Minerals Is Not a Tax in Landmark Ruling

Pune, 25th July 2024 – In a landmark decision on Thursday, a nine-judge bench of the Supreme Court ruled that royalty on minerals cannot be considered a tax. Chief Justice D.Y. Chandrachud announced the ruling, which is a setback for the central government. The decision emerged from 86 petitions filed by state governments and mining companies challenging the classification of royalty as a tax.

The Supreme Court’s ruling, delivered by an 8-1 majority, declared that royalty on minerals is not a tax. Chief Justice Chandrachud emphasized that under Entry 50 of List II of the Constitution, Parliament lacks the authority to impose taxes on mineral rights. This ruling overturns several previous Supreme Court decisions, including a significant 1989 decision that had classified royalty as a tax.

Entry 50 pertains to taxes on mineral rights, subject to limitations imposed by Parliament regarding mineral development. Chief Justice Chandrachud pointed out that the Supreme Court’s 1989 decision was incorrect in classifying royalty as a tax, as it misinterpreted the constitutional provisions.

However, Justice B.V. Nagarathna dissented from the majority opinion, asserting that the central government holds exclusive authority to tax mineral rights. She argued that allowing states to impose additional levies on royalties paid by miners could create inconsistencies and an anomalous situation.

The ruling resulted from 86 petitions filed by various state governments and mining companies. The Supreme Court held eight days of hearings to address whether the right to impose royalty and tax on minerals should rest with the state governments. The bench will reconvene on July 31 to determine whether the ruling should be applied retrospectively or prospectively. A retrospective application could benefit states like West Bengal, Odisha, and Jharkhand, which have local laws imposing additional charges on minor minerals.

This landmark ruling highlights the ongoing debate over the distribution of taxation authority between the central and state governments. It also underscores the complexities involved in interpreting constitutional provisions related to mineral rights and taxation. The forthcoming hearing on the ruling’s application will further shape its impact on both state and central government policies.