Supreme Court on States’ Power to Tax Minerals

Context

A nine-judge Constitution Bench of the Supreme Court in, Mineral Area Development Authority v M/s Steel Authority of India, recently held that states have the power to levy tax on mines and minerals. 

About

• The dispute originated from the enactment of the Mines and Minerals (Development and Regulation) Act, additionally referred to as MMDR Act by the Union Government in 1957, which brought the control of mines and minerals under the Union government’s jurisdiction. 
• Section nine of the Act, requires people who acquire rentals to conduct mining activities to “pay royalty in appreciation of any mineral removed” to the man or woman or organization who leased the land to them.

What is Royalty?

• Royalties check with the prices paid to the owner of a product in alternate for the right to apply that product. 
• For instance, if a film studio wants to use an existing piece of music by a specific artist in their new film, they will have to pay a royalty fee that goes to the artist.

Difference Between Royalty and Tax

• Earlier in 2021, the Supreme Court of India had delineated the distinction among ‘royalty’ and ‘tax.’ 
• Royalty: It originates from an agreement between events. It is a reimbursement paid for the rights and privileges loved with the aid of the grantee.
  • The royalty value has a right away relationship with the benefit or privilege conferred upon the grantee. 
  • It is particular to the agreement and is often related to the exploitation of assets or utilization of a privilege granted by the grantor.
• Precedents: The Court referenced several cases, which includes Hingir-Rampur Coal Co. Ltd. Vs. State of Orissa (1961), State of West Bengal vs. Kesoram Industries Ltd. (2004), and others, to establish that royalties are contractual duties with direct blessings.
• Tax: It is imposed below a statutory power without connection with any unique advantage conferred on the payer. It is enforced by law and does not require the taxpayer’s consent.
  • Taxes are imposed for public purposes with non unique advantage to the payer. They are part of the common burden borne by all residents.
  • Unlike royalties, taxes do not involve a quid seasoned quo arrangement. The fee is obligatory and no longer linked to any specific privilege or benefit.
• Precedents: The Court referred to several instances, consisting of the State of Himachal Pradesh vs. Gujarat Ambuja Cement Ltd. (2005) and Jindal Stainless Ltd. Vs. The State of Haryana (2017), to focus on the characteristics of taxes.

Supreme Court Verdict

• The Supreme Court held that the “royalty” collected by state governments under Section 9 of the Mines and Minerals (Development & Regulation) Act, 1957 (MMDRA) isn’t a tax. 
• The responsibility to pay royalty arises from contractual agreements between the lessor and lessee and is not supposed for public functions; alternatively, it serves as repayment for the specific use of mineral assets.
• Contractual payments made to the government cannot be equated to taxes.
• The judgment overruled the decision of the case in India Cement Ltd. V State of Tamil Nadu (1989), which had declared that royalty is a tax.

Source: The Hindu