Last Updated on 26/07/2024 by wccexam Desk
The Supreme Court gave a historic verdict on Thursday. A bench of 9 judges of the Supreme Court gave a verdict by a majority of 8:1 and said that royalty on minerals cannot be considered as a tax. Along with this, it also said that the state governments have the right to impose tax on minerals.
This decision of the Supreme Court is being considered a big victory for mineral-rich states like Odisha, Bengal, Jharkhand and Chhattisgarh. At the same time, this has given a big blow to the central government.
Chief Justice DY Chandrachud said, ‘Royalty cannot be considered as a tax. What the court said in its decision in the India Cements case that royalty is a tax was wrong. The payment made to the government cannot be considered as a tax just because there is a provision in a law for its due recovery.’
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However, Justice BV Nagarathna, who was part of the 9-judge bench, disagreed with this decision. He said that royalty is a kind of tax and the states have no right to impose tax or any fee on minerals.
What was this whole matter? What did the Supreme Court say in its decision? And what will be the effect of this decision? Let’s know every thing related to this…
What was this matter?
This entire matter was related to the tax and royalty imposed on minerals and mineral land. The laws of the state governments imposing royalty or tax on minerals and mineral land were challenged in the Supreme Court. States like Rajasthan and Uttar Pradesh had demanded to impose cess on the transportation of coal and coal-dust coming out of the mines. At the same time, Bihar also implemented similar laws in 1992 and 1994.
In 2011, a three-judge bench of the Supreme Court transferred it to a nine-judge bench. That was because in 1989 a seven-judge bench had given a decision related to it.
In 1989, in the case of India Cements vs. Government of Tamil Nadu, the Supreme Court had considered royalty as a tax under the Mines and Minerals (Development and Regulation) Act of 1957. The court had then said that imposing tax or cess on such royalty is beyond the legislative capacity of the state governments.
In 2011, a three-judge bench headed by Justice SH Kapadia had raised several questions while referring the matter to a nine-judge bench. The biggest question was whether royalty could be considered as tax under MMDRA of 1957 or not?
What did the Supreme Court have to decide?
The court had to examine the scope of the royalty prescribed in Section 9 of the MMDRA, 1957, and whether it could be termed a “tax”, and whether state governments had the power to make rules relating to minerals under Section 15(1) of the Act.
The court had to decide whether Entry 50 of List II of the Seventh Schedule of the Constitution empowers the state government to levy tax on minerals? And whether Entry 49 of List II allows state governments to levy tax on land and buildings?
What decision did the Supreme Court give?
Apart from Chief Justice DY Chandrachud, the 9-judge bench included Justice Hrishikesh Roy, Justice Abhay Oka, Justice BV Nagarathna, Justice JB Pardiwala, Justice Manoj Mishra, Justice Ujjal Bhuiyan, Justice SC Sharma and Justice AG Masih.
A nine-judge bench gave its verdict by a majority of 8:1 and said that royalty levied on minerals and mineral land cannot be considered as tax. The bench overturned the 1989 Supreme Court verdict.
The Supreme Court said that the MMDR Act of 1957 does not restrict the powers of the state government to impose tax. Under Section 9 of that Act, royalty cannot be considered as tax.
The court said that Entry 49 of List II covers all types of land, including land containing minerals. Therefore, the state government can impose tax on it. The court also said that the restrictions imposed by the Parliament in the law related to minerals in Entry 50 of List II cannot be applied to Entry 49.
What did Justice Nagarathna say?
Justice Nagarathna is the only judge who disagreed with the decision. He said that royalty is a tax, so according to the MMDR law, the state government cannot impose tax on minerals.
He also said that ‘land’ under Entry 49 of List II would not include mineral-bearing land as it would lead to double taxation of mineral rights.
Justice Nagarathna said that allowing states to levy taxes on minerals would lead to a lack of uniformity in national resources. This could also create forced competition among states, which could lead to the collapse of the federal structure.
Now what?
When will this decision of the Supreme Court be implemented? A decision on this is yet to be taken. Many states have demanded that this decision be implemented in advance, while the Solicitor General requested that it be implemented from the date of the decision. The Supreme Court will now hear this on next Wednesday.
What impact could the decision have?
– On States: This decision of the Supreme Court is expected to increase the revenue of mineral-rich states like Jharkhand and Odisha. Now the state governments will also be able to make laws related to minerals and mines.
– At the center: This decision has made clear the division of powers between the Centre and the states in matters related to minerals. If the Supreme Court implements this decision in advance, then the Centre may have to pay huge dues to the states.
– On the industry: However, the mining industry is worried about this decision. The mining industry is worried that this may lead to double taxation and increase the cost of mining.
How big is the mining industry in India?
According to the Ministry of Minerals, the number of mines in India was 1,319 in 2021-22. Whereas, their number was 1,375 in 2020-21. However, this does not include mines containing minor minerals, fuel minerals and atomic minerals.
Madhya Pradesh has the highest number of mines at 263. After this, Gujarat has 147 mines, Karnataka has 132 mines, Odisha has 128 mines, Chhattisgarh has 114 mines, Andhra Pradesh has 108 mines, Rajasthan has 90 mines, Tamil Nadu has 88 mines, Maharashtra has 73 mines, Jharkhand has 45 mines and Telangana has 39 mines.
More than 97 percent of minerals were produced in only seven states. The highest mineral production takes place in Odisha. In 2021-22, 44.11% of minerals were produced in Odisha, 17.34% in Chhattisgarh, 14.10% in Rajasthan, 13.24% in Karnataka, 4.36% in Jharkhand, 2.44% in Madhya Pradesh and 1.45% in Maharashtra. In 2021-22, minerals worth more than Rs 2.11 lakh crore were produced in India.