In 8:1 Majority, SC Decrees Mineral Royalties As Non-Taxable, States Gain Authority

Picture source: ANI

New Delhi: In a blow to the central government, the Supreme Court ruled on Thursday that royalties on minerals are not considered taxes, affirming that states have the authority to levy taxes on lands with mines and minerals. 

A majority of 8:1 from the nine-judge bench, led by Chief Justice DY Chandrachud, ruled that royalty payments on minerals are not a tax. The bench has instructed the Centre and the states to submit written arguments, with a final decision expected on July 31. 

The ruling will benefit mineral-rich states like Jharkhand and Odisha, which had requested the Supreme Court to rule on the recovery of taxes amounting to thousands of crores levied by the Centre on mines and minerals up until now. 

These states also asked the court to apply the ruling retroactively to ensure a refund of taxes from the Centre. However, Solicitor General Tushar Mehta, representing the Centre, strongly opposed this request, arguing that the verdict should only be applied moving forward. 

Reading the key portion of the majority decision, the Chief Justice stated that the 1989 verdict by the Supreme Court's seven-judge Constitution bench, which declared royalty a tax, was incorrect. 

"Royalty is not within the nature of tax as it is a contractual consideration paid by the lessee for the mining lease. Both royalty and dead rent do not fulfil the characteristics of tax. The judgement in India Cements (1989 verdict) holding royalty to be a tax is overruled,” PTI reported, quoting CJI. 

Royalties are payments made by the user to the owner of an intellectual property or real property asset. 

According to Entry 49, states have the authority to levy taxes on lands and buildings, while Entry 50 permits states to impose taxes on mineral rights, subject to any restrictions set by Parliament concerning mineral development.