In a landmark ruling on Wednesday, the Supreme Court of India denied the Central government’s plea to limit the application of its July 25 verdict, which affirmed the states’ authority to tax mineral rights and land bearing minerals. The Court has authorized states to reclaim royalties dating back to April 1, 2005, from both the Central government and mining lease holders.
This decision bolsters the financial standing of mineral-rich states, allowing them to collect significant arrears accrued over nearly two decades. The Supreme Court has also specified that these tax arrears can be settled in a staggered manner over a 12-year period starting from April 1, 2026.
The nine-judge bench, led by Chief Justice D Y Chandrachud, underscored that royalties derived from mineral extraction are distinct from taxes. This clarification corrects the longstanding misconception stemming from the India Cements judgment that treated royalty as a tax. The majority verdict was supported by eight justices, with only Justice B V Nagarathna dissenting, holding onto the view that royalties should be considered a tax and that states lack the legislative competence to impose such charges on mineral rights.
The ruling fortifies the legislative competence of states under Article 246 in conjunction with Entry 49 of List 2 of the Constitution, enabling them to levy taxes on lands containing minerals. This judgment resolves a contentious debate on whether the royalty payable under the Mines and Minerals (Development and Regulation) Act of 1957 constitutes a tax and clarifies the dual authority of both the state and central governments in this regard.
The matter, which has seen a complex series of appeals from state governments, mining companies, and public sector undertakings, was deliberated over eight days by the Supreme Court’s bench.
