States have the authority to levy taxes on mineral rights

Jul 29, 2024

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News:

A significant judgment delivered in a 8:1 ratio by a nine-judge Constitution Bench headed by Chief Justice of India (CJI) D.Y. Chandrachud 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.

First go through Seventh Schedule:

Union List:

54. Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest

State List:

50. Taxes on mineral rights are subject to any limitations imposed by Parliament by law relating to mineral development.

Right now, 'Royalty' is levied under the Mines and Mineral (Development and Regulation) [MMDR] Act 1957. State Government collects this because the State Govt. owns Minerals lying in their State. So, if a company has the mining lease, then the company will pay 'Royalty' (as decided in MMDR Act 1957) to the State Govt.

But 'Royalty' is not considered a tax, rather it is a contractual consideration paid by the mining lessee to the lessor (owner) for the right to extract minerals. So as per point 50 under the Seventh Schedule State List, A State Government has the right to impose any tax (or Cess which is also a temporary tax) on mining activities. But the Centre has the power to frame rules and regulations for developing mines and minerals (Point 54 under Union List).

So, if the Centre wants it can prohibit/limit any tax imposed on mines and minerals (by States) by amending the MMDR Act 1957 in the Parliament. But till then, as per the SC Judgement, States can impose taxes (or Cess) on mining-related activities within their States.

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