The Supreme Court (SC) has agreed to examine the Centre's plea seeking a swift review of a previous verdict that granted states the power to tax mineral rights. This move comes after the Central government filed a curative petition challenging the nine-judge bench ruling from July 2024, which upheld the states' authority to impose taxes on mineral rights and mineral-bearing lands.
The core of the Centre's argument is that allowing states to individually tax mineral rights could trigger financial instability and pose a threat to the federal structure of the country. Solicitor General Tushar Mehta, representing the Union government, emphasized the broad implications of the issue, stating that it concerns the distribution of royalties on minerals, potentially leading to varying mineral prices across states and creating international ramifications.
The nine-judge Constitution Bench, led by the then Chief Justice D.Y. Chandrachud, had ruled by an 8:1 majority on July 25, 2024, that states possess the legislative power to tax mineral rights, and that royalties paid on minerals do not constitute a tax. This verdict effectively overruled a 1989 judgment in the case of India Cements Ltd vs. State of Tamil Nadu, which had declared royalty as a tax. The 2024 ruling also stated that Parliament lacks the legislative competence to tax mineral rights under Entry 54 of List I of the Constitution, which pertains to the regulation of mines and mineral development by the Centre. This decision was seen as a significant revenue boost for mineral-rich states.
However, the Centre argues that this ruling could lead to a chaotic situation with each state setting different mineral prices, thereby affecting the federal structure. The government has challenged the ruling that allowed state governments to levy and renew demands for taxes on transactions made from April 1, 2005.
During a hearing on Thursday, Chief Justice of India Surya Kant stated that the court would look into the Centre's request for an early hearing of its curative petition. CJI Kant also mentioned a plan to commence hearings by nine-judge Constitution Benches from January 2026, though this proposal is yet to be discussed with other judges. He indicated he would review the records before making a decision on the listing of the petitions.
The Supreme Court's 2024 verdict clarified that unless Parliament imposes a limitation, the state's right to impose taxes on mineral rights remains unaffected. It also stated that Parliament can impose limitations under Entry 50 of List 2 of the Constitution through statutory instruments and that the Mines and Minerals (Development & Regulation) Act (MMRDA) cannot impinge upon the taxing rights of the states.
Justice B.V. Nagarathna had dissented from the majority, asserting that royalty was in the nature of a tax and that the Centre does possess the authority to impose it.
The implications of the Supreme Court's decision on the curative petition are significant for both the Centre and the states. A reversal of the previous ruling could restore the Centre's authority over mineral taxation, while upholding the ruling would further empower states and potentially lead to increased revenue for mineral-rich regions. The upcoming proceedings in the Supreme Court will be closely watched by stakeholders across the country, as they will likely have a lasting impact on the financial dynamics between the Union and the states.
