The legislative power to tax mineral rights vests with the States and the royalty paid on minerals is not a tax, the Supreme Court ruled on Thursday in a landmark judgement which will give a huge revenue boost to mineral-rich States.
A nine-judge constitution bench headed by Chief Justice D Y Chandrachud, in a majority 8:1 verdict, said Parliament does not have the legislative competence to tax mineral rights under Entry 54 of List I of the Constitution which pertains to regulation of mines and mineral development by the Centre.
The pronouncement, which came as a setback to the Centre, however, said Parliament can still legislate to impose “any limitations” on States’ power to levy tax on mineral rights.
It referred to the term “any limitations” under Entry 50 of List II and said its scope is wide enough to include imposition of “restrictions, conditions, principles, as well as a prohibition”.
Entry 50 of List II pertains to taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.
Justice B V Nagarathna, in her dissenting verdict, said royalty is in the nature of a tax or an exaction and the Centre does have the power to levy it.
After the bench pronounced its verdict, the counsel appearing for various States urged it to decide on recovery of taxes worth thousands of crores of rupees levied by the Centre on mines and minerals till now.
