Supreme Court upholds the state’s power to tax mines and minerals

Photo Credit: A.M. Faruqui

With an 8:1 majority, the Supreme Court upheld states’ power to tax mineral bearing lands.

In India, mines and minerals are primarily regulated by the Mines and Minerals (Development and Regulations) (MMDR) Act, 1957. 

The Court examined whether:

(i) royalty collected on mining activities under the MMDR Act qualifies as a tax,

(ii) states’ power to tax land and building extends to mineral bearing land, and

(iii) the Parliament can limit the state legislature’s powers to impose taxes on mines and minerals.

The Court held that royalty is not a tax.  It is a payment that arises out of the contractual obligation to enjoy mineral rights. 

The Court also held that power of States to tax mineral rights cannot be superseded by powers of Parliament to regulate the sector.  Under the Constitution, states’ powers to tax mineral rights can be limited by an Act of Parliament. The Court noted that the MMDR Act, 1957 does not restrict the state’s ability to collect taxes.    

The Court also held that states’ power to tax land extends to mines and quarries.  Such lands can be taxed based on mineral value or produce.  It also stated that the Parliament cannot limit states’ powers to tax mineral bearing lands.