Mineral Area Development Authority vs Steel Authority of India & Anr Etc.

Headnote:(A) Mines and Minerals (Development and Regulation) Act, 1957 - Sections 2, 9, 9A, 9B, 9C, 13, 15, 17, 18, 25 - Constitution of India - Seventh Schedule - List I, Entry 54; List II, Entries 23, 49, 50 - Royalty - Tax - Mineral rights - Legislative competence - Limitations.

(B) The court examined the nature of royalty under the MMDR Act, the scope of Entries 23, 49, and 50 of List II, and the limitations imposed by Parliament under Entry 54 of List I.

(C) The court addressed whether royalty is a tax, the scope of Entry 50 of List II concerning taxes on mineral rights subject to limitations imposed by Parliament, and the interplay between Entry 50 and Entry 54 of List I (regulation of mines and mineral development).

(D) The court also considered whether Entry 50 constitutes an exception to the principle that taxing entries are distinct from general entries, and whether the MMDR Act imposes limitations on state taxing powers.

Facts of the case:
Appeals challenged High Court decisions on the constitutional validity of state levies on mineral rights, considering previous conflicting judgments on whether royalty is a tax.

Findings of Court:
The court held that royalty is not a tax but a contractual consideration; Entry 50 of List II does not create an exception to the principle of distinct taxing and general entries; the MMDR Act does not impose limitations on state taxing powers under Entry 50; states can tax mineral-bearing land under Entry 49, using mineral yield as a measure; and previous conflicting judgments are overruled.

Issues: The main issues were the nature of royalty under the MMDR Act, the scope of Entry 50 of List II, and the interplay between Entries 49 and 50 of List II in relation to taxing mineral-bearing land.

Ratio Decidendi: The court reasoned that royalty is a contractual payment, not a tax; Entry 50 of List II allows Parliament to impose limitations on state taxing powers but not to tax mineral rights itself; the MMDR Act does not limit state taxing powers under Entry 50; and states can tax mineral-bearing land using mineral yield as a measure.

Result: Previous conflicting judgments overruled; appeals disposed of.

Judgement Key Points

Key Points: - (!) The MMDR Act declares Union control over regulation of mines and development of minerals; royalty is fixed under Section 9 and Second Schedule. - (!) Section 9 authorizes royalty payments; the Central Government can amend rates under Section 9(3). - (!) Petitioners argued royalty is not a tax; respondents argued any levy related to mineral development limits state taxing powers under Entry 50 List II. - (!) Nine-judge bench discusses inter-relationship between Entry 50 List II and Entry 54 List I. - (!) Entry 50 is "taxes on mineral rights" subject to "any limitations imposed by Parliament by law relating to mineral development." - (!) Parliament’s supremacy through Entry 54 List I can denude State power in areas covered by MMDR Act. - (!) Conclusions: royalty is a tax or exaction; Entry 50 is not an exception to Sundararaman; MMDR Act imposes limitations on state taxation of mineral rights. - (!) States can tax mineral-bearing lands under Entry 49 List II only to the extent not denuded by Parliament; royalties/measures under MMDR may limit that field. - (!) Holdings that Entries 49 and 50 operate in distinct fields but can coexist with nexus-based measures; need to harmonize.

Question 1?

What is the true nature of royalty under Section 9 of MMDR Act: is it a tax or a contractual exaction?

Question 2?

What is the scope and meaning of Entry 50 of List II (taxes on mineral rights) in relation to Entry 54 of List I and the MMDR Act: does MMDR impose limitations on state taxing powers?

Question 3?

Can a State levy taxes on mineral-bearing land under Entry 49 List II using mineral value or royalty as measure, in light of Parliament’s power to regulate mineral development under Entry 54 List I?

1. Whether royalty payable under Section 9 of the MMDR Act is in the nature of a tax or impost?

Royalty is not a tax or impost; it is a consideration paid by the lessee to the lessor for exercising mineral rights under a mining lease. It lacks the essential characteristics of a tax: it is not a compulsory exaction by public authority for public purposes, but flows from contractual conditions of the lease. (Para 100 , 122 , 123 , 124 , 125 , 126 , 127 , 130 )

2. Whether Entry 50 of List II is an exception to the principle that taxing entries are distinct from general regulatory entries under M P V Sundararamier?

Entry 50 of List II is not an exception to the Sundararamier principle. Taxing entries are mutually exclusive and distinct from regulatory entries. Entry 50 is sui generis because it is a taxing entry made subject to limitations by a non-fiscal regulatory enactment, but the field of taxation cannot be derived from a regulatory entry. (Para 192 , 205 , 207 )

3. Whether the MMDR Act serves as a limitation on the taxing powers of State legislatures under Entry 50 of List II?

The MMDR Act does not impose any limitations on the taxing powers of States under Entry 50 of List II. There is no specific provision in the MMDR Act limiting State taxation of mineral rights. Sections 9, 9A, 9B, and 9C regulate royalty and fees but do not restrict the State's sovereign taxing power over mineral rights. (Para 209 , 224 , 229 , 230 , 231 )

4. Whether mineral value or mineral produce can be used as a measure of tax on mineral-bearing land under Entry 49 of List II?

Yes, mineral value or mineral produce can be used as a measure of tax on mineral-bearing land under Entry 49 of List II. The yield from mineral-bearing land is directly connected to the land, and the legislature has discretion to select any reasonable measure of tax so long as it bears a reasonable nexus to the nature of the tax. (Para 325 , 331 , 341 )

5. Whether Parliament can impose taxes on mineral rights under its residuary powers under Entry 97 of List I?

No, Parliament cannot use residuary powers to tax mineral rights. The subject of taxes on mineral rights is specifically enumerated in Entry 50 of List II. Residuary powers under Entry 97 can only be invoked for matters not enumerated in List II or List III, and the Constitution entrusts the taxing of mineral rights exclusively to the States. (Para 198 , 199 , 200 )

JUDGMENT

Dr Dhananjaya Y Chandrachud, CJI.

Table of Contents

A.	Background
B.	Issues
C.	Submissions
i.	Submissions of the petitioners
ii.	Submissions of the respondents
D.	Distribution of legislative fields relating to mines and minerals
E.	Underlying constitutional philosophy
i.	Scheme of distribution of legislative powers and constitutional limitations 29
ii.	Interpretation of legislative entries
iii.	Fiscal Federalism
iv.	Natural resources and the public trust doctrine
F.	Whether royalty is tax
i.	Royalty under the MMDR Act
ii.	Purpose of Section 9 of the MMDR Act
iii.	Contours of a mining lease
a.	Lease and license
b.	The nature of a mining lease under the MMDR Act and the Mineral Concession Rules 1960
iv.	Meaning of “royalty”
v.	Characteristics of Tax
vi.	Royalty is not in the nature of tax
a.	Prelude to India Cement
b.	Divergence between India Cement and Kesoram
c.	Royalty is not a tax
G.	Inter-relationship between Entry 23 of List II and Entry 54 of List I
i.	Meaning of “regulation of mines” and “mineral development”
ii.	Analysis of Hingir-Rampur, M A Tulloch, and Baijnath Kedia
iii.	Examination of the “extent” of the MMDR Act
H.	Inter-relationship between Entry 50 of List II and Entry 54 of List I
i.	Taxes on mineral rights
a.	Mineral rights duty
b.	Meaning of the expression “mineral rights”
c.	Taxes on mineral rights
ii.	The limitations on the taxing power of the State under Entry 50 of List II
a.	Entry 50 of List II does not constitute an exception to the Sundararamier principle
b.	Nature of “any limitation”
c.	Scheme of the MMDR Act does not serve as “any limitation”
d.	Section 9 does not serve as a limitation on the taxing powers of State
e.	“Any limitation” can extend to prohibition
f.	Impact of taxes on mineral rights on mineral development
I.	Scope of Entry 49
i.	Land System in India
ii.	Tax on land and buildings
a.	Principles governing ‘taxes on lands and buildings’
a.	States can impose tax on mineral bearing land
iii.	Measure of tax
a.	Taxing mineral-bearing land
b.	Goodricke
iv.	Measure of tax on mineral-bearing land
a.	Decoupling of minerals from land
b.	Minerals as measure of tax on land
J.	Conclusions

A. Background

1. The present batch of appeals bears on the distribution of legislative powers between the Union and the States on the taxation of mineral rights. The legislative entry which lies at the core of the present reference is Entry 50 of List II of the Seventh Schedule to the Constitution. The entry deals with taxes on mineral rights subject to “any limitations imposed by Parliament by law relating to mineral development.” Regulation of mines and mineral development is enumerated under both the Union List (Entry 54 of List I) and the State List (Entry 23 of List II) of the Seventh Schedule. The entrustment of the subject to the State legislatures under Entry 23 of List II is made subject to the provisions of Entry 54 of List I.

2. Parliament enacted the Mines and Minerals (Development and Regulation) Act, 1957¹[“MMDR Act”] in exercise of its legislative powers under Article 246 of the Constitution. The subject which the legislation predominantly covers is relatable to Entry 54 of List I. The MMDR Act is a comprehensive code for the regulation of mines and development of minerals. Section 9 provides that the holder of a mining lease shall pay royalty in respect of any mineral removed or consumed from the leased area at the specified rates. In India Cement Ltd. v. State of Tamil Nadu, (1990) 1 SCC 12 [34] a seven-Judge Bench of this Court held that royalty is tax and the st

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2024 Supreme(SC) 604