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Mineral Area Development v. M/S Steel Authority of India & Ors.

The Supreme Courts’ nine-judge bench gave its judgment in Mineral Area Development v.
M/S Steel Authority of India, clarifying the legal position on the rights of the States to tax
mineral rights and tax lands and buildings both being the distinct taxation powers of the State
under the State List. The Bench was asked to determine the correctness of the decision of a 7-
judge Bench in India Cement Ltd. v. State of T.N. which was revisited by a 5-judge Bench
in State of W.B. v. Kesoram Industries Ltd.
In 1957, the Union Government enacted the Mines and Minerals (Development and
Regulation) Act to oversee mineral development. As stipulated in Section 9 of this Act,
individuals with mining leases were obligated to pay a royalty to the Union government for
any minerals extracted or utilized from the leased property. This clause was challenged in the
India Cement case 3 , where the Supreme Court ruled that the Tamil Nadu government's levy
of a cess on royalty amounted to a tax on royalty, which was beyond the State's jurisdiction.
This issue resurfaced in 1999 when a writ petition was lodged against the Bihar Coal Mining
Area Development Authority (Amendment) Act, 1992.
In 1963, the government of Tamil Nadu issued a mining lease to India Cements Ltd. for the
extraction of limestone and kankar, with the royalty rates determined by the Mines Act of
1957. Meanwhile, the Madras Panchayat Act of 1958, specifically Section 115(1), established
a local cess of 45 paise per rupee on land revenue, which was to be collected by each
panchayat development block and paid to the government. India Cements contested this
provision in the Madras High Court, arguing that the Tamil Nadu government did not have
the legislative authority to impose a cess on royalty. The court ruled that the tax imposed by
the government was a land tax, which they were entitled to levy under Entry 49 of the State
List. India Cements then appealed to the Supreme Court, contending that the cess on royalty
was essentially a tax on royalty, which was outside the legislative power of the Tamil Nadu
government. The Supreme Court concluded that the royalty was indirectly linked to the
extracted minerals, affirming that royalty is considered a 'tax' under the Mines Act.
In the case of Kesoram Industries Ltd (Textiles Division) v. Coal India Ltd., 4 the Calcutta
High Court's division bench declared the coal cess levies unconstitutional, citing the state's
lack of legislative authority. Conversely, a three-judge bench of the Supreme Court in State
of Madhya Pradesh v. Mahalakshmi Fabric Mills Pvt. Ltd., 5 affirmed the legality of Section 9
of the Mines Act. Subsequently, in 1999, a writ petition contested the Bihar Coal Mining
Area Development (Amendment) Act, 1992. In Ram Dhani Singh v. Collector, Sonbhadra, 6
the Allahabad High Court validated Section 35 of the U.P. Special Area Development
Authorities Act, 1986, which imposed a cess on minor minerals. Numerous such petitions
culminated in the ruling of Mineral Area Development v. M/S Steel Authority of India &
Ors.

Issues:
 Is royalty considered a form of tax?
 Is it within the authority of the State Legislature to impose a land tax based on the
value of its yield under the State List?
 Does the MMDRA, 1957 remove the State Legislature's authority to tax and oversee
mines and minerals?
 Is the majority ruling in State of West Bengal v Kesoram Industries Ltd. (2004) at
odds with the legal principles established in India Cement Ltd. v State of Tamil Nadu
(1990)?
 Are States permitted to tax land rich in minerals despite the mining laws enacted by
Parliament?

ARGUMENTS OF THE PETITIONER:
According to the petitioner's learned counsel, royalty paid under Section 9 of the Mines Act
is not a tax on minerals or mineral rights since it does not fit the definition of a "tax" or
"impost" under Article 366(28) of the Constitution. The petitioner argued that since minerals
remain a part of the land until they are mined, the term "lands" under Entry 49 should be read
to include all types of land, including property that contains minerals.
Under Entry 50 of List II, the State Legislature's authority to impose taxes on mineral rights
is subject to any restrictions set by the Parliament. The petitioner contended that Parliament
lacks the legislative authority to impose taxes on any of the topics listed in List II. Mineral
rights are not subject to parliamentary taxation. Although the Mines Act does not specifically
prohibit state legislatures from taxing minerals, they contended that the Seventh Schedule
clearly delineates the authority to impose taxes, mutually excluding the authority of the
Union and state governments to do so.
Moreover, only mine and mineral development regulation is covered under the MMDR Act.
Royalties and death rent, which are levied under the Act, are not considered taxes; rather,
they are considered payments for the right to use the land and its usufruct. Since the topic has
been explicitly listed in the State List, Section 18 of the Mines Act does not place any explicit
restrictions on the legislative authority of the States to tax mineral rights, nor does the
Parliament have the authority to tax minerals using any remaining residuary powers.

ARGUMENTS OF THE RESPONDENTS:
R. Venkataramani, the Attorney General of India, contended that since royalty is a demand
for giving up the right to exploit the mineral, it makes no difference if it is classified as a tax.
No fee, charge, impost, or demand that is unrelated to mineral development may be imposed
using Entry 50 of List II as a basis of authority. The MMDR Act's provisions will be
interpreted as restricting the states' ability to impose levies, imposts, or demands on minera
rights.
The Central Government can set the royalty to guarantee balanced mineral development in
India, according to Mr. Tushar Mehta, the country's solicitor general. Only the land's surface
may be referred to as "lands" in Entry 49 of List II. Subsurface minerals cannot be included
in an expanded interpretation. According to Entry 50 of List II, any fee levied by the States
based on the value of minerals produced is essentially a tax on mining rights. Given that
parliamentary law restricts the subject matter of the mineral rights protected by Entry 50 of
List II, interpreting lands to include mineral deposits in order to give Entry 49 of List II an
expansive reading will result in overlap between the two.
The other knowledgeable Senior Counsels contended that, in accordance with Article 366(28)
of the Constitution, royalty qualifies as a tax. Certain portions of the MMDR Act, including
Sections 9, 9A, and 9B, impose taxes on mining lessees who work in the field of mineral
rights taxation. The Mines Act is intended to demonstrate that Parliament has the authority to
restrict the authority of State legislatures under Entry 50 in addition to taxing mining rights.

DECISION OF THE COURT:
According to Entries 49 and 50, respectively, the Constitution Bench ruled in an 8:1 majority
on July 25, 2024, that states have the authority to levy taxes on mineral lands and rights.
However, the Bench stressed that no penalties or interest could be applied to the retroactive
tax demands, and that this ruling would take effect retroactively to April 1, 2005.
Section 9 of the Mines and Minerals (Development & Regulation) Act, 1957, allows state
governments to collect "royalty," however the Bench ruled that this is not a tax. A 35-year-
old ruling in India Cements v. State of Tamil Nadu (1989), which held that royalty
constituted a tax, was overturned by the ruling. In order to maintain a certain degree of
consistency in mineral prices, the Union Government established a royalty under Section 9.
The Apex Court outlined the three primary distinctions between a royalty and a tax as:
 A proprietor charges a royalty; Taxes "are imposed by a sovereign."
 Royalties are a consideration, and taxes are assessed in a legally defined "taxable
occurrence."
 A lease document generates a royalty, while taxes are imposed by an “authority of
law.”
The majority ruled that the Union's regulatory authority and the States' taxing authority under
Entry 50 do not directly conflict. The only restrictions on Entry 50 are those imposed by the
Mineral Development Law. The Court made it clear that everything below and above the
surface is considered "land," hence subsurface minerals are likewise considered to be a part
of the land. Thus, the Court has upheld state governments' authority to tax minerals and
miners.
1 (1990) 1 SCC 12
2 (2004) 10 SCC 201
3 India Cement Ltd. v. State of T.N, (1990) 1 SCC 12
4 AIR 1993 CALCUTTA 78
5 AIR 1995 SC 2213
6 AIR 2001 ALLAHABAD 5

Detail Information

Title

Mineral Area Development v. M/S Steel Authority of India & Ors.

Court

: supreme court., 2024

Lenght/Sections/Order/Rules

-

Language

English

Case Number/Citation

2024 INSC 554

Matter(s)

-

Councels

Counsels for the Petitioner: Senior Adv. Rakesh Dwivedi; Senior Adv. S.Niranjan Reddy; Senior Adv. Vijay Hansaria; Senior Adv. S.R. Singh; Adv. Santosh Krishnan; Adv. Kirti Renu Mishra; Adv. Sansriti Pathak  Counsels for the Respondents: Attorney General R.Venkataramani; Solicitor General Tushar Mehta; Senior Adv. Harish Salve; Senior Adv. Arvind Datar

Statement of Responsibility

FARAH MUHAMMED RASHEED/GOVERNMENT LAW COLLEGE KOZHIKODE

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