Published On: 19th April, 2026
Authored By: Keerthi Rebecca
University College of Law, Osmania University
Citation: 2024 SCC OnLine SC 1796
Court: Supreme Court of India
Bench: Dr D.Y. Chandrachud C.J., Hrishikesh Roy, Abhay S. Oka, B.V. Nagarathna, J.B. Pardiwala, Manoj Mishra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.
Date of Judgment: 25 July 2024
Relevant Provisions/Statutes: Entries in List I and List II of the Seventh Schedule of the Constitution of India regarding the regulation of mines and taxation on mineral-bearing lands; Mines and Minerals (Development and Regulation) Act, 1957
Brief Facts
The present case concerns the distribution of legislative powers between the Union and the States with respect to the regulation and taxation of mineral rights under the Constitution. Parliament, in exercise of its legislative powers under Article 246 of the Constitution and Entry 54 of List I of the Seventh Schedule, enacted the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act). Section 9 of the MMDR Act mandates the payment of royalty by a mining lessee in respect of any mineral removed from the leased area.
The principal issue before the Court was whether the royalty payable under the MMDR Act is in the nature of a tax. In India Cement Ltd v. State of Tamil Nadu,[1] a seven-judge bench held that royalty is a tax and that the State cannot levy taxes on mineral rights. Subsequently, in State of West Bengal v. Kesoram Industries Ltd,[2] the Court held that the judgment in India Cement had stemmed from an inadvertent error and clarified that royalty is not a tax. The present appeal arose in this constitutional backdrop, questioning the validity of the State’s power to impose taxes on minerals.
Issues Involved
1. Whether the royalty mandated under Section 9, read with Section 15(1), of the MMDR Act, 1957, is in the nature of a tax?
2. Whether the State Legislature, while levying tax under List II Entry 49 of the Seventh Schedule, may do so on the basis of the value of the produce of the land?
3. What is the meaning of the expression “taxes on mineral rights subject to limitations imposed by Parliament by law relating to mineral development” as used in List II Entry 50 of the Seventh Schedule?
4. Whether the majority decision in State of West Bengal v. Kesoram Industries Ltd is in conflict with the law laid down in India Cement Ltd v. State of Tamil Nadu?
5. Whether List II Entry 50 is a specific entry in relation to List II Entry 49 and would consequently exclude mineral-bearing land from the scope of List II Entry 49?
Arguments
Petitioners
The petitioners contended that the royalty payable under the MMDR Act, 1957, is the consideration for the right to work a mine and to extract minerals vested either in the government or in a private person. Section 9 of the MMDR Act determines the price to be paid by the lessee to the lessor under the mining lease. It was argued that royalty does not meet the criteria of a tax under Article 366(28) of the Constitution, and that the MMDR Act does not expressly restrict the power of the States to levy taxes on mineral rights. It was further contended that the expression “taxes on lands and buildings” under List II Entry 49 should be construed expansively to include all kinds of land, including mineral-bearing land. Since minerals remain a part of the land until they are extracted, the value of minerals may be used as a measure for taxing mineral-bearing land.
The MMDR Act, 1957, deals only with the regulation of mines, and the royalty and dead rent payable under it are not in the nature of a tax but are payments made to enjoy the land and its usufruct. List I Entry 54 and List II Entry 23 are general entries relating to the regulation of mines. Entry 23 has been expressly made subordinate to the provisions of List I with respect to regulation under Union control. The power of the States to levy tax under List II Entry 50 has been made subject to limitations imposed by Parliament by law; however, Parliament cannot arrogate to itself the power to tax mineral rights but can only impose limitations on the States when they exercise their own taxing powers. The royalty paid is therefore not a tax but a contractual or statutory payment.
Respondents
The respondents contended that it is immaterial whether royalty is a tax or not. Any levy relating to mineral development, as long as it relates to mineral rights, will operate as a limitation on the taxing powers of the States under List II Entry 50. The MMDR Act, 1957, provides for all manner of levies, charges and imposts that can be imposed on mineral rights and therefore occupies the entire field of legislation covered by List II Entries 23 and 50.
In response to the petitioners’ expansive interpretation of “taxes on lands and buildings” under List II Entry 49, the respondents submitted that this expression cannot be read to include sub-soil minerals, because the subject matter of mines and minerals is specifically covered by List I Entry 54 and List II Entries 23 and 50. It was further contended that the royalty paid by lessees is not the result of a negotiated contractual agreement but a compulsory exaction, and therefore meets the criteria of a tax under Article 366(28) of the Constitution. The respondents also argued that the limitations imposed by Parliament under List II Entry 50 need not be express; they can also be implied. Once Parliament imposes charges or levies under a law relating to mineral development, it occupies the entire field pertaining to List II Entry 50, thereby precluding the States from imposing any further tax on the same subject matter.
Judgement
In an 8:1 majority ruling, the Supreme Court upheld the States’ power to levy taxes on mineral-bearing land. The Court held that royalty is not a tax but a statutory payment made by a lessee to the lessor for the right to extract minerals. The Court overruled the earlier judgment in India Cement Ltd v. State of Tamil Nadu, which had treated royalty as a tax and consequently curtailed State taxation powers. The Court further held that Parliament has the authority to enact legislation restricting the States’ ability to impose such taxes. The majority also concluded that States may use the mineral value of land as a basis for imposing taxes on lands and buildings under List II Entry 49. Justice B.V. Nagarathna delivered the sole dissent, arguing that royalty is in the nature of a tax and that permitting States to levy additional taxes could produce a cascading effect on taxation.
Ratio Decidendi
The Court held that the royalty paid under Section 9 of the MMDR Act is not in the nature of a tax, as it is a statutory or contractual payment for the grant of mineral rights and lacks the essential characteristics of a tax, namely, compulsory exaction for the purpose of raising public revenue.
Final Decision
The Supreme Court held that royalty is not a tax but a statutory payment arising out of a mining lease. The Court overruled India Cement Ltd v. State of Tamil Nadu and affirmed that State legislatures are competent under List II Entries 49 and 50 to levy taxes on mineral rights and mineral-bearing lands. This judgment has significantly contributed to resolving recurring conflicts concerning the taxation of minerals and has clearly delineated the scope and limits of the distribution of legislative powers between the Union and the States under the Seventh Schedule of the Constitution, bringing much-needed clarity to the field.
In a clarificatory order dated 14 August 2024, the Court permitted retrospective tax demands but limited them to transactions occurring on or after 1 April 2005, and directed that no interest or penalties shall be imposed for such periods.
References
[1] India Cement Ltd v. State of Tamil Nadu, (1990) 1 SCC 12 (India).
[2] State of West Bengal v. Kesoram Industries Ltd, (2004) 10 SCC 201 (India).
