MINERAL AREA DEVELOPMENT AUTHORITY & ANR. versus M/S STEEL AUTHORITY OF INDIA & ANR. ETC.

Summary

A nine-Judge Bench answered a reference on State power to tax minerals and mineral-bearing land. In the opinion of Chandrachud CJI, the Court held that royalty under Section 9 of the MMDR Act is a contractual consideration, not a tax. The power to tax mineral rights under Entry 50 of List II belongs only to the States and is limited only by limitations Parliament expressly imposes by law; the MMDR Act imposes none. Mineral-bearing land is 'land' under Entry 49, and its yield (minerals produced or royalty) may measure a tax on it. India Cement and the decisions following it were overruled to that extent. Nagarathna J. dissented, holding that royalty is a tax and that the MMDR Act limits Entry 50 and excludes mineral-bearing land from Entry 49.

Issues

1. Whether royalty determined under Section 9 of the MMDR Act, 1957 is in the nature of a tax.
2. What is the scope of 'taxes on mineral rights' in Entry 50 of List II, and does Section 9 or any other provision of the MMDR Act impose a limitation on that field?
3. Whether Entry 50 of List II, being subject to limitations imposed by Parliament by a law relating to mineral development, is an exception to the M P V Sundararamier principle that taxing powers come only from taxing entries, and whether Parliament can tax mineral rights under Entry 54 of List I or its residuary power.
4. What is the nature and reach of the 'limitations' Parliament may impose under Entry 50 of List II, and must they be express?
5. Whether States can tax mineral-bearing land under Entry 49 of List II, and whether the value of mineral produce or royalty can be the measure of such a tax.
6. Whether Entry 50 is a specific entry that removes mining land from Entry 49, and whether limitations under Entry 50 also restrict Entry 49.
7. Whether India Cement, which treated royalty as a tax, or Kesoram, which treated it as not a tax, states the correct law.

Provisions considered

• Section 9 (with the Second Schedule) and Section 9A, Mines and Minerals (Development and Regulation) Act, 1957Royalty is paid by the lessee to the lessor, the State or a private owner, for removing or consuming minerals under the mining lease. Central fixation of rates and the cap on enhancement in Section 9(3) are regulatory measures under Entry 54 of List I. They do not make royalty a tax and do not limit State taxation under Entry 50. Dead rent under Section 9A is an alternative to royalty and stands on the same footing. (¶¶ 64, 65, 66, 68, 98, 99, 123, 124, 125, 126, 127, 129, 130, 204, 229, 230)
• Sections 9B and 9C, Mines and Minerals (Development and Regulation) Act, 1957Contributions to the District Mineral Foundation and the National Mineral Exploration Trust are additional payments linked to royalty for specific purposes. They are not taxes on mineral rights and impose no limitation on the States' power under Entry 50 of List II. (¶¶ 69, 70, 231)
• Section 2 (declaration of Union control), Mines and Minerals (Development and Regulation) Act, 1957The declaration takes regulation of mines and mineral development under Union control only 'to the extent hereinafter provided'. It largely excludes State power under Entry 23 of List II, but cannot by implication take away the States' taxing power under Entry 50. The contrary reasoning in P Kannadasan was disapproved. (¶¶ 62, 158, 160, 161, 163, 219, 224, 228)
• Section 25, Mines and Minerals (Development and Regulation) Act, 1957That royalty may be recovered as arrears of land revenue does not make it an impost enforceable by law. Section 25 is a general recovery provision for sums due to the Government, whether under statute or contract. (¶ 125)
• Seventh Schedule, List II, Entry 50 (taxes on mineral rights), Constitution of IndiaThe power to tax mineral rights belongs only to the State legislatures. It is subject only to limitations that Parliament expressly imposes by a law relating to mineral development, and such limitations may extend to prohibition. 'Mineral rights' covers the bundle of rights that go with ownership of minerals, including extracting and dispatching them. (¶¶ 165, 178, 185, 187, 188, 189, 190, 206, 211, 222, 223, 224, 245, 342)
• Seventh Schedule, List I, Entry 54 and List II, Entry 23, Constitution of IndiaThese are general, regulatory entries. Entry 23 yields to Entry 54 only to the extent that a parliamentary law expressly covers the field. Entry 54 confers no power to tax, so Parliament cannot tax mineral rights under it. (¶¶ 131, 132, 137, 141, 146, 158, 160, 161, 163, 196, 197, 204)
• Seventh Schedule, List II, Entry 49 (taxes on lands and buildings), Constitution of India'Lands' includes everything below the surface, so mineral-bearing land is land that States may tax as a unit. The yield of such land, measured by the quantity of minerals produced or by royalty, may be the measure of the tax. The MMDR Act and any limitation under Entry 50 do not restrict Entry 49. (¶¶ 270, 275, 278, 280, 281, 282, 330, 331, 332, 333, 339, 341, 342)
• Articles 246 and 248; Seventh Schedule, List I, Entry 97, Constitution of IndiaBecause taxes on mineral rights are expressly listed in List II, Parliament cannot reach that subject through its residuary power under Article 248 and Entry 97. (¶¶ 30, 31, 198, 199, 200, 204)
• Article 366(28) and Article 265, Constitution of IndiaA tax is a compulsory exaction by a public authority for public purposes, enforceable by law. A consideration paid under a contract to the State for exclusive privileges, such as royalty under a mining lease, is neither a tax nor an impost. (¶¶ 104, 105, 106, 108, 109, 127)

Held

• Royalty is not a tax. It is a consideration paid by the mining lessee to the lessor, whether the Government or a private owner, for enjoying mineral rights and to compensate for the depletion of minerals. The liability arises from the mining lease. Statutory fixation of rates does not make royalty a compulsory exaction for public purposes, and recovery as arrears of land revenue does not make it a tax. Dead rent likewise is not a tax. The statement in India Cement that royalty is a tax is incorrect. (¶¶ 98, 99, 123, 125, 126, 127, 129, 130, 342)
• Entry 50 of List II is not an exception to the M P V Sundararamier principle. The power to tax cannot be derived from a general entry such as Entry 54 of List I, so Parliament cannot tax mineral rights. Because the subject is listed in List II, Parliament cannot use its residuary power either. Fixation of royalty under Section 9 is valid only because royalty is not a tax and falls within regulation under Entry 54. Mahalaxmi Fabric Mills, Saurashtra Cement and Mahanadi Coalfields, which held otherwise, do not state the correct law. (¶¶ 196, 197, 198, 200, 204, 205, 207, 342)
• The relationship between Entry 54 of List I and Entry 23 of List II differs from that between Entry 54 and Entry 50. Under Entry 23, a parliamentary declaration removes State regulatory power to the extent the law covers the field. Under Entry 50, the States keep the taxing field, and Parliament may only impose limitations on it in the interest of mineral development. (¶¶ 210, 211, 243)
• Limitations under Entry 50 must be expressly imposed 'by law', meaning by statutory provisions. They cannot be implied from the general scheme of the MMDR Act, and the doctrines of implied limitations and constitutional silences do not apply where the Constitution itself prescribes the limitation and how it is to be imposed. (¶¶ 213, 215, 222, 223, 224, 226, 227)
• The MMDR Act as it stands imposes no limitation on the States' power to tax mineral rights. Neither Sections 9, 9A, 9B and 9C nor the Act's centralised regulatory scheme limits Entry 50. The States' other revenues from mining, such as royalty, District Mineral Foundation contributions and auction premium, do not by implication cut down their taxing power. P Kannadasan, which held that Section 2 denuded the States of power to tax minerals, is contrary to this scheme. (¶¶ 219, 221, 224, 228, 229, 230, 231, 249, 342)
• The expression 'any limitations' in Entry 50 is wide enough to include restrictions, conditions, principles and even a prohibition. It is for Parliament to decide whether, and how, to limit State taxation of mineral rights if it considers such taxes harmful to mineral development. A State tax on mineral rights cannot be presumed to impede mineral development. (¶¶ 233, 237, 241, 242, 244, 245, 248)
• 'Lands' in Entry 49 covers all kinds of land and everything below the surface, so the States may tax land comprising mines and quarries as a unit. The MMDR Act's declaration affects only Entry 23 and leaves the States' power under Entry 49 untouched. Minerals are separated from the land only when the lessee exercises mineral rights by removing or consuming them, not when the lease is granted. (¶¶ 270, 275, 278, 280, 281, 282, 323, 324, 342)
• The measure of a tax is for the legislature, provided it has a reasonable nexus with the nature of the tax, and the measure does not decide the nature of the tax. The yield of mineral-bearing land, by quantity of minerals produced or by royalty, which is directly related to that yield, may measure a tax on such land under Entry 49. India Cement and Orissa Cement were wrong to hold royalty only indirectly connected with land, and Goodricke was clarified accordingly. (¶¶ 289, 290, 328, 330, 331, 332, 333, 334, 341, 342)
• Entries 49 and 50 of List II deal with distinct subjects and operate in different fields, so the maxim generalia specialibus non derogant does not apply. Using mineral value or produce as the measure of a land tax does not turn it into a tax on mineral rights. Limitations imposed by Parliament under Entry 50 do not operate on Entry 49. India Cement, Orissa Cement, Federation of Mining Associations of Rajasthan, Mahalaxmi Fabric Mills, Saurashtra Cement, Mahanadi Coalfields and P Kannadasan were overruled to the extent of these conclusions. (¶¶ 302, 339, 340, 341, 342)
• Nagarathna J., dissenting in a separately paragraphed opinion, held that royalty under Section 9 is a tax or exaction. On her view, Sections 9, 9A and 25 of the MMDR Act are limitations under Entry 50 that deny the States any further levy on mineral rights, and Entry 50 read with Entry 54 is an exception to Sundararamier. She would also have held that mineral-bearing land is outside Entry 49 and that neither mineral value nor royalty can measure a tax on it, that India Cement and the decisions following it were correctly decided, and that the majority in Kesoram should be overruled. She agreed that 'any limitations' can include a prohibition.

Result

Reference answered in terms of the conclusions in paragraph 342 of the opinion of Chandrachud CJI, with Nagarathna J. dissenting; India Cement and related decisions overruled to the extent indicated; Registry to obtain the Chief Justice's directions for listing the individual matters before an appropriate Bench.