A nine-judge Constitution Bench on July 25 held that the power of State Legislatures to tax mining lands and quarries is not limited by the Parliament’s Mines and Minerals (Development and Regulation) Act of 1957.
Key points
- The majority judgment, pronounced in the case, Mineral Area Development Authority v M/s Steel Authority of India, held that State Legislatures derive their power to tax mines and quarries under Article 246 read with Entry 49 (tax on lands and buildings) in the State List of the Seventh Schedule of the Constitution.
- Entry 50 of List II does not constitute an exception… The power to tax mineral rights vests in the State Legislatures.
- The Parliament does not have the legislative competence to tax mineral rights, with Entry 54 of the Union List (Regulation of mines and minerals development declared by parliamentary law to be expedient in the public interest) being only a general entry.
- Power to tax mineral rights is enumerated in List II. The Parliament cannot use its residuary powers with respect to that subject matters .
- The court also held that collecting “royalties” from mining leaseholders is entirely separate from, and does not interfere with, the power to impose taxes.
- Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDRA) requires those who obtain leases to conduct mining activities to “pay royalty in respect of any mineral removed” to the individual or corporation who leased the land to them.
- The majority judgement held that a royalty is not a tax because there is a “conceptual difference” between royalties and taxes.
- Royalties are based on specific contracts or agreements between the mining leaseholder and the lessor (the person who leases the property) who can even be a private party.
