MINERAL AREA DEVELOPMENT AUTHORITY, ETC. vs M/S STEEL AUTHORITY OF INDIA, 2024
Case Title and Citation: Mineral Area Development Authority Etc. v. M/S Steel Authority of India. 2024 INSC 554 (25 July 2024).
Factual Background
The case concerned the division of legislative powers between the Union Government and State Governments regarding the taxation of mineral rights. The Parliament regulates mines and mineral development through the Mines and Minerals (Development and Regulation) Act, 1957 (“MMDR Act”), which requires mining lease holders to pay royalty on minerals removed. A judicial conflict existed between previous Supreme Court rulings: a seven-judge bench in India Cement Ltd. (1989) held that royalty was a tax, limiting state taxing power, while a later Constitution Bench in Kesoram Industries Ltd. (2004) asserted that royalty was not a tax. Following Kesoram Industries, several states imposed various taxes on mineral-bearing lands. These state laws, such as the Bihar Coal Mining Area Development Authority (Amendment) Act 1992, were challenged, leading to a reference to a nine-Judge Bench to resolve the significant questions surrounding the states’ authority to tax mining and minerals and settle the conflict between the prior judgments.
Issue(s)
- What is the true legal nature of royalty prescribed under Section 9 of the MMDR Act; specifically, whether royalty constitutes a tax?
- What is the scope of the State Legislature’s power to levy taxes on mineral rights (Entry 50, List II), and does the MMDR Act impose limitations on this power?
- Does the State Legislature’s power to levy taxes on land (Entry 49, List II) include the authority to tax mineral-bearing land, and can the measure of this tax be based on mineral yield or value?
Decision of the Supreme Court
The Nine-Judge Bench, by an 8:1 majority, reached the following conclusions:
- Royalty is not a tax.
- State legislatures have the competence to tax mineral rights under Entry 50 of List II.
- The MMDR Act does not impose any limitation on the taxing power of the states conferred by Entry 50 of List II.
- States have the power to tax mineral-bearing lands under Entry 49 of List II, and mineral value or produce can be used as a measure for this tax.
- The Court overruled prior inconsistent decisions including India Cement, Orissa Cement, and Mahalaxmi Fabric Mills regarding the observations made in this case.
Reason for the Decision
- Royalty is not a Tax: Royalty is characterized as a contractual consideration paid by the lessee to the lessor (often the State) in exchange for the right or privilege to extract minerals. This payment is determined by statutory agreement (a mining lease) and is usually based on the quantity of minerals removed. In contrast, a tax is a compulsory monetary exaction imposed by a public authority, without the consent of the taxpayer, primarily to fund general public expenditure, lacking a reference to any specific benefit granted to the payer. Royalty, arising from an agreement, does not meet these characteristics of a tax.
- State Power to Tax Mineral Rights: The fundamental constitutional principle (Sundararamier) dictates that taxation powers are distinct and separate from general regulatory powers. Entry 50 of List II specifically grants the states the power to levy taxes on mineral rights. Entry 54 of List I grants the Union the general power only to regulate mines and mineral development, not to impose taxes.
- MMDR Act Limitation: The States’ taxing power under Entry 50 is subject only to “any limitations” expressly imposed by Parliament by law relating to mineral development. The MMDR Act, being a regulatory law enacted under the Union’s regulatory power (Entry 54, List I), does not contain any specific provision or expression limiting or restricting the states’ power to impose taxes on mineral rights under Entry 50, List II.
- Tax on Mineral-Bearing Land (Entry 49): The constitutional power of states to tax lands under Entry 49 of List II includes mineral-bearing lands. The principle establishes a clear distinction between the subject matter of a tax (the land unit itself) and the measure of the tax (the standard used for quantification). Therefore, using the mineral value or mineral produce (or royalty, which is related to yield) as a yardstick to calculate the tax on land is a permissible measure and does not cause an overlap with the subject matter of Entry 50 (tax on mineral rights). The existence of Entry 50 (tax on mineral rights) does not exclude the application of Entry 49 (tax on land) to mineral-bearing lands.
Conclusion
The Supreme Court definitively established the legislative competence of State Legislatures to levy taxes on mineral rights (Entry 50, List II) and on mineral-bearing lands (Entry 49, List II). It clarified that royalty is a contractual payment, not a tax, thereby maintaining the constitutional separation between Union regulatory control (Entry 54) and State taxing powers (Entries 49 and 50).
Case Materials
Day 1 of Arguments: 27 February 2024 (Argument Transcripts) | (Video Recording)
Day 2 of Arguments: 28 February 2024 (Argument Transcripts) | (Video Recording)
Day 3 of Arguments: 29 February 2024 (Argument Transcripts) | (Video Recording)
Day 4 of Arguments: 05 March 2024 (Argument Transcripts) | (Video Recording)
Day 5 of Arguments: 06 March 2024 (Argument Transcripts) | (Video Recording)
Day 6 of Arguments: 12 March 2024 (Argument Transcripts) | (Video Recording)
Day 7 of Arguments: 13 March 2024 (Argument Transcripts) | (Video Recording)
Day 8 of Arguments: 14 March 2024 (Argument Transcripts) | (Video Recording)
