Supreme Court Upholds States’ Right to Impose Royalty on Mineral Rights

In a landmark 8:1 verdict, the Supreme Court of India has upheld the rights of states to impose royalty on mining and mineral-use activities. The ruling, delivered by a bench led by Chief Justice of India DY Chandrachud, clarifies that ‘royalty’ is distinct from ‘tax’, reversing an earlier order and affirming states’ legislative authority.

“Royalty is not like tax… We conclude that the observation in the 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 Chandrachud stated. Justice BV Nagarathna delivered the sole dissenting opinion.

The majority of the bench ruled that the states retain the power to impose cesses on mining and related activities, emphasizing the legislative competence of state legislatures under Article 246 read with Entry 49 of List 2 to tax mineral-bearing lands. The court also noted that the Parliament lacks legislative competence to tax mineral rights as it is a general entry, and the states hold this specific power.

This ruling marks a significant victory for states, reinforcing their authority over mineral rights and the imposition of related royalties. The decision is expected to have substantial implications for the mining industry and state revenues.

The judgment reaffirms the autonomy of state legislatures in matters of taxation related to mineral resources, ensuring a clearer demarcation of powers between the central and state governments.