2024 (7) TMI 1390 - SC - Indian Laws

Nature of Royalty - Distribution of legislative powers between the Union and the States on the taxation of mineral rights - true nature of royalty determined under Section 9 read with Section 15(1) of the MMDR Act - royalty is in the nature of tax or not - scope of Entry 50 of List II of the Seventh Schedule - ambit of the limitations imposable by Parliament in exercise of its legislative powers under Entry 54 of List I - Does Section 9, or any other provision of the MMDR Act, contain any limitation with respect to the field in Entry 50 of List II? - expression subject to any limitations imposed by Parliament by law relating to mineral development in Entry 50 of List II pro tanto subjects the entry to Entry 54 of List I, which is a non-taxing general entry - any departure from the general scheme of distribution of legislative powers as enunciated in M P V Sundararamier 1958 (3) TMI 40 - SUPREME COURT or not - scope of Entry 49 of List II and whether it covers a tax which involves a measure based on the value of the produce of land - constitutional position be any different qua mining land on account of Entry 50 of List II read with Entry 54 of List I or not - Entry 50 of List II is a specific entry in relation to Entry 49 of List II, and would consequently subtract mining land from the scope of Entry 49 of List II. What is the true nature of royalty determined under Section 9 read with Section 15(1) of the MMDR Act? Whether royalty is in the nature of tax? As per Dr Dhananjaya Y Chandrachud, CJI (majority view) - Royalty is not a tax. Royalty is a contractual consideration paid by the mining lessee to the lessor for enjoyment of mineral rights. The liability to pay royalty arises out of the contractual conditions of the mining lease. The payments made to the Government cannot be deemed to be a tax merely because the statute provides for their recovery as arrears. As per NAGARATHNA, J. (dissenting view) - The true nature of royalty determined under Section 9 read with Section 15(1) of the MMDR Act, 1957 is that it is in the nature of a tax coming within the scope and ambit of Article 366(28) of the Constitution which defines taxation to include the imposition of any tax or impost, whether general or local or special and the word tax is to be construed accordingly. What is the scope of Entry 50 of List II of the Seventh Schedule? What is the ambit of the limitations imposable by Parliament in exercise of its legislative powers under Entry 54 of List I? - Does Section 9, or any other provision of the MMDR Act, contain any limitation with respect to the field in Entry 50 of List II? - Whether the expression subject to any limitations imposed by Parliament by law relating to mineral development in Entry 50 of List II pro tanto subjects the entry to Entry 54 of List I, which is a non-taxing general entry? Consequently, is there any departure from the general scheme of distribution of legislative powers as enunciated in M P V Sundararamier 1958 (3) TMI 40 - SUPREME COURT ? As per Dr Dhananjaya Y Chandrachud, CJI (majority view) - Entry 50 of List II does not constitute an exception to the position of law laid down in M P V Sundararamier (supra). The legislative power to tax mineral rights vests with the State legislatures. Parliament does not have legislative competence to tax mineral rights under Entry 54 of List I, it being a general entry. Since the power to tax mineral rights is enumerated in Entry 50 of List II, Parliament cannot use its residuary powers with respect to that subject-matter. Entry 50 of List II envisages that Parliament can impose any limitations on the legislative field created by that entry under a law relating to mineral development. The MMDR Act as it stands has not imposed any limitations as envisaged in Entry 50 of List II - The scope of the expression any limitations under Entry 50 of List II is wide enough to include the imposition of restrictions, conditions, principles, as well as a prohibition. As per NAGARATHNA, J. (dissenting view) - Entry 50 - List II of the Seventh Schedule is, no doubt, a taxation Entry which deals with taxes on mineral rights. But this Entry is subject to any limitations imposed by Parliament by law relating to mineral development. The use of the word any means the limitation could be in any form which can be imposed only by the Parliament by law relating to mineral development. In view of the use of the expression any limitations , it must be given the widest possible meaning to include a limitation in the form of Sections 9 and 9A, 25 or any other provision of the MMDR Act, 1957 and Rules made thereunder which act as a limitation to Entry 50 - List II. The expression subject to any limitations imposed by Parliament by law relating to mineral development in Entry 50 - List II pro tanto subjects the Entry to Entry 54 - List I. The use of the expression any limitations would mean that the taxing Entry would be subject to a nontaxing or general Entry such as in Entry 54 - List I which could also be termed as a regulatory Entry. Consequently, there is a departure from the general scheme of distribution of legislative powers as enumerated in MPV Sundararamier insofar as Entry 50 - List II read with Entry 54 - List I is concerned which is unique to Entry 50 List II. This is having regard to the significance of Entry 54 List I which also overrides Entry 23 List II. What is the scope of Entry 49 of List II and whether it covers a tax which involves a measure based on the value of the produce of land? Would the constitutional position be any different qua mining land on account of Entry 50 of List II read with Entry 54 of List I? - Whether Entry 50 of List II is a specific entry in relation to Entry 49 of List II, and would consequently subtract mining land from the scope of Entry 49 of List II? As per Dr Dhananjaya Y Chandrachud, CJI (majority view) - The State legislatures have legislative competence under Article 246 read with Entry 49 of List II to tax lands which comprise of mines and quarries. Mineralbearing land falls within the description of lands under Entry 49 of List II - The yield of mineral bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land under Entry 49 of List II. The decision in Goodricke 1994 (11) TMI 353 - SUPREME COURT is clarified to this extent. Entries 49 and 50 of List II deal with distinct subject matters and operate in different fields. Mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 of List II - The limitations imposed by Parliament in a law relating to mineral development with respect to Entry 50 of List II do not operate on Entry 49 of List II because there is no specific stipulation under the Constitution to that effect. The decisions in INDIA CEMENT LIMITED VERSUS STATE OF TAMIL NADU 1989 (10) TMI 53 - SUPREME COURT , Orissa Cement 1991 (4) TMI 436 - SUPREME COURT , Federation of Mining Associations of Rajasthan 1991 (8) TMI 350 - SUPREME COURT , Mahalaxmi Fabric Mills 1995 (2) TMI 435 - SUPREME COURT , Saurashtra Cement 2000 (10) TMI 954 - SUPREME COURT , Mahanadi Coalfields 1995 (4) TMI 285 - SUPREME COURT , and P Kannadasan 1996 (7) TMI 554 - SUPREME COURT are overruled to the extent of the observations made in the present case. As per NAGARATHNA, J. (dissenting view) - Entry 49 - List II deals with taxation of lands and buildings. It does not cover taxes on mineral bearing lands. The constitutional position is different qua mineral bearing lands on account of Entry 50 - List II read with Entry 54 - List I and Section 2 of the MMDR Act, 1957. Consequently, any imposition on the basis of royalty by a State Legislature or involving royalty as a measure of the value of the minerals extracted from the land is impermissible. Entry 50 - List II is a specific Entry in relation to Entry 49 - List II and would consequently subtract mining lands from the scope of Entry 49 - List II. This is particularly so having regard to Entry 50 - List II to be read with Entry 54 - List I and Section 2 of the MMDR Act, 1957.

Summary

Issues Involved:
1. Nature of royalty under Section 9 of the MMDR Act.
2. Scope of Entry 50 - List II and limitations imposed by Parliament.
3. Relationship between Entry 50 - List II and Entry 54 - List I.
4. Scope of Entry 49 - List II and its applicability to mineral-bearing lands.
5. Specificity of Entry 50 - List II in relation to Entry 49 - List II.

Detailed Analysis:

1. Nature of Royalty under Section 9 of the MMDR Act:
The judgment distinguishes between royalty and tax. It holds that royalty is a contractual consideration paid by the mining lessee to the lessor for the enjoyment of mineral rights. It is not a tax. The liability to pay royalty arises from the contractual conditions of the mining lease.

2. Scope of Entry 50 - List II and Limitations Imposed by Parliament:
Entry 50 - List II allows State legislatures to tax mineral rights but is subject to limitations imposed by Parliament by law relating to mineral development. The MMDR Act, 1957, particularly Sections 9, 9A, and 25, imposes such limitations. The expression "any limitations" under Entry 50 - List II is broad enough to include restrictions, conditions, principles, and even prohibitions.

3. Relationship Between Entry 50 - List II and Entry 54 - List I:
The judgment clarifies that Entry 50 - List II is subject to Entry 54 - List I, which is a non-taxing general entry. This relationship indicates a departure from the general scheme of distribution of legislative powers as enunciated in MPV Sundararamier. The MMDR Act, 1957, enacted under Entry 54 - List I, limits the State's power to tax mineral rights under Entry 50 - List II.

4. Scope of Entry 49 - List II and Its Applicability to Mineral-Bearing Lands:
Entry 49 - List II pertains to taxes on lands and buildings. The judgment concludes that mineral-bearing land falls within the description of "lands" under Entry 49 - List II. However, the yield of mineral-bearing land, in terms of the quantity of mineral produced or the royalty, can be used as a measure to tax the land under Entry 49 - List II. The decision in Goodricke is clarified to this extent.

5. Specificity of Entry 50 - List II in Relation to Entry 49 - List II:
Entry 50 - List II is specific to taxes on mineral rights and operates distinctly from Entry 49 - List II, which pertains to taxes on lands and buildings. The judgment concludes that mineral value or mineral produce can be used as a measure to impose a tax on lands under Entry 49 - List II. However, the limitations imposed by Parliament in a law relating to mineral development with respect to Entry 50 - List II do not operate on Entry 49 - List II.

Conclusions:
1. Royalty is not a tax but a contractual consideration for mineral rights.
2. Entry 50 - List II allows State legislatures to tax mineral rights, subject to limitations imposed by Parliament.
3. Entry 50 - List II is subject to Entry 54 - List I, indicating a unique relationship that departs from the general scheme of legislative power distribution.
4. Entry 49 - List II includes mineral-bearing lands, and mineral yield can be used as a measure for taxation under this entry.
5. Entry 50 - List II is specific to mineral rights and does not overlap with Entry 49 - List II.