Published On: July 23rd 2026
Authored By: V.C. Sukumar
Tamil Nadu Dr. Ambedkar Law University
CASE DETAILS
- Case Name: Mineral Area Development Authority & Anr. V. M/S Steel Authority of India & Anr.[1]
- Citation: 2024 INSC 554 : 2024 SCC OnLine SC 1796 : Civil Appeal No. 4056-4064 of 1999
- Court: Supreme Court of India
BACKGROUND AND FACTS
Parliament has enacted by the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) falling under Entry 54 of list I of the 7th schedule. According to Section 9, those who hold mining leases are required to pay royalty from the minerals mined. Many mineral rich states like Jharkhand, Odisha, West Bengal, Chhattisgarh, etc. imposed additional taxes and cess on mineral rights and mineral bearing lands. The companies which were being charged these levies filed petitions challenging their constitutional validity on the grounds that MMDR Act barred such taxes. This issue had first arisen in the case of India Cement Ltd. vs State of Tamil Nadu (1990) where a 7-judge bench held the royalty to be a tax thus rendering the state levies invalid..A subsequent 5-judge bench in State of WB vs Kesoram Industries Ltd (2004) concluded that there was a typographical error in India Cement case and that the royalty was not a tax at all. This contradiction led to the constitution of 9-judge bench.
LEGAL QUESTIONS
- Is royalty specified under Section 9 of the MMDR Act a “tax” or a contractual payment (exaction)?
- Do State legislatures possess legislative competence to impose taxes on mineral rights under Entry 50 of List II, or is such power eclipsed by Parliament’s law under Entry 54 of List I?
- Can States tax mineral-bearing land under Entry 49 of List II using royalty as the measure of the tax?
- Whether the MMDR Act expressly limits State power under Entry 50, List II, so as to oust State taxing competence?
ARGUMENTS
States / Petitioners states Entry 50, List II, explicitly provides for taxation of mineral rights by the States subject to any express limitation by Parliament. The MMDR Act does not contain any such limitation, and any limitation by Parliament must be expressed, and not merely inferred. Royalty is a payment out of a contract between the lessor and lessee and is not a tax, which flows from a legislative command, but from a contract, and as such, falls under Entry 49 (taxes on land and buildings) and not Entry 50. The minerals are part of the land until extraction, and the State has a separate taxing head for mineral bearing land. The decision in India Cement case was erroneous in treating royalty as a tax resulting in fiscal injustice to the mineral States for three decades. The mining companies / respondents states India Cement case settled the law that royalty was a tax, and once Parliament had legislated in respect of mineral development in Entry 54, the States were precluded from adding further burdens. The MMDR Act covers the field in relation to mineral royalty, and so no legislation by the States in relation to the same would be valid in law as it would be double taxation of the same transaction in contravention of Article 265 and fiscal propriety. The States’ contention would lead to a race to the bottom in relation to mineral taxation in India with different rates applying to different minerals in different States and the entire mineral development industry becoming subject to a retrospective levy aggregating to an estimated ₹1.5 lakh crore, which would cripple the industry..
JUDGMENT
Royalty is not a tax. The eight-judge majority has concluded that royalty as defined under section 9, MMDR Act, is a consideration paid by the lessee to the lessor (State) for granting rights to explore and exploit minerals and, therefore, lacks the very hallmark of a tax, namely, element of compulsion, absence of quid pro quo, and levy for public purposes.
The competence of the States to impose tax on mineral rights has not been withdrawn by the Parliament through any amendment. The power to make laws is conferred on the State legislature by entry 50, list II, the Seventh Schedule, which reads as “minerals”. The limitations, if any, on the taxing powers of the States would have to be spelt out explicitly by the Parliament, and such limitations cannot be inferred from the mere fact that the MMDR Act was enacted by the Parliament. The aforesaid entries 50 and 49 also empower the States to impose tax on minerals. It is pertinent to note that the term “land”, in entry 49, also includes minerals till they are separated from the land, and, therefore, there is no doubt in interpreting the provisions of entry 49 so as to enable the States to impose tax on minerals, with royalty as the method of assessment and a direct nexus between the tax and the mineral.
India Cement (1990) decision to the extent that royalty was held to be a tax, has been overruled by per curiam order. Kesoram Industries case (2004)[2] has upheld our view in so far as it relates to entry 49. The order dated 14 th August 2024, therefore, directs that the tax demands can only be raised from 1.4.2005 onwards. However, no interest or penalty would be payable in respect of the taxes due prior to 1.7.2024. The amount of tax payable in respect of mineral concession would be paid in annual instalments of 12 years with effect from 2006.
RATIO DECIDENDI
The obligation to pay royalty under section 9 of the MMDR Act arises by virtue of the terms of the contract of mining lease and not by virtue of any sovereign taxing authority; therefore, it is not a tax. The legislature of the state has the exclusive power to impose taxes on mineral rights and mineral bearing lands as per entries 49 and 50 of list 2. Parliament’s power to impose such taxes, however, is limited to the specific authority provided by entry 50 of list 1, which can be interpreted to mean only that the power to tax is not subject to the limitations imposed by section 9 of the MMDR Act. The MMDR Act does not explicitly authorize Parliament to impose such charges, and the state’s taxing powers are not restricted by this act.
Dissent (Nagarathna J.): Justice Nagarathna differed with the view that royalty was purely contractual in nature, pointing out that the compulsory extraction of minerals under section 9 of the MMDR Act gave the royalty the nature of a tax or exaction. She also felt that the power of a state to tax mineral rights without any restriction would undermine the unity of the country and impair the national policy on minerals.[3]
CRITICAL ANALYSIS
The judgment under consideration is momentous in many respects. First, it is a significant victory for cooperative federalism as it restores fiscal federalism by returning to the mineral-scant states, which were in dire need of an additional source of revenue, a competence that had been denied to them for the last 34 years since the India Cement ruling. In this respect, the judgment is entirely in line with the federalist intent of the Constitution as reflected in the Preamble, Articles 245-246, and the Seventh Schedule. Secondly, the doctrine enunciated by the Court in relation to the “limitation” of the field is also notable. As such, the Court held that a restriction on Entry 50 by the Parliament can only be explicit, not inferred from the general “field” covered by Items 106 and 107. Consequently, in future disputes concerning the alleged violations of the federal principle, the doctrine of “covering the field” will no longer be used to circumvent the rights of the States to levy taxes that are specifically enumerated in the Constitution.
Nevertheless, the restoration of fiscal federalism came at a high price for the industries as the additional taxes imposed by the States may soon reach a figure as high as ₹1.5 lakh crore. Nonetheless, by introducing a waiver of interests and penalties due and a 12-year payment plan beginning from 2026, the Court displayed a degree of judicial statesmanship in attempting to balance the federal principles enshrined in the Constitution and the welfare of the State economies. At the same time, it is hard to deny that the Court was not entirely consistent by giving preference to the States that imposed additional taxes over those that did not. Although the Constitutionality of the discriminatory tax burden was already answered in the affirmative by the Jindal Stainless Ltd. v. State of Haryana ruling of 2016, which clarified that taxes levied by the States cannot be inherently discriminatory to the free trade between the States as guaranteed by Article 301, the Court’s willingness to overturn a 34-year-old judgment that involved a 7-judge panel cannot be viewed in the best light. Therefore, as a matter of federalist principles, the application of the doctrine of prospective overruling was by far too conservative. In the future, as each of the States will be free to establish its own mineral tax rates, the competition between them for the Union market may soon lead to a de facto revision of mineral prices on a national level, which may necessitate a new round of litigation concerning the limits of federalism as outlined in Articles 301 and 304.[4]
REFERENCES
[1] Mineral Area Development Authority Etc vs M/S Steel Authority Of India 2024 INSC 554 on 25 July, 2024
[2] State Of West Bengal vs Kesoram Industries Ltd. And Ors 10 SCC 201on 15 January, 2004
[3] https://www.dhyeyalaw.in/mineral-area-development-vs-ms-steel-authority-of-india-and-ors
[4] Nature of royalty paid by mine leaseholders, https://www.scobserver.in/cases/is-royalty-paid-by-mine-leaseholders-to-the-union-government-a-form-of-taxmineral-area-development-authority-v-steel-authority-of-india/
