Supreme Court Verdict on Minerals in India | States Can Tax Mining Lands

A landmark ruling by a nine-judge Constitution Bench of the Supreme Court has reshaped the legal landscape surrounding taxation on minerals in India. Delivered in an 8:1 majority, the judgment, led by Chief Justice D.Y. Chandrachud, clarified the constitutional powers of states to levy taxes on mining lands and quarries, independently of the Parliament’s Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act).

Key Verdict: Empowering States on Mineral Taxation

• The Supreme Court upheld that state legislatures can impose taxes on lands and quarries used for mining, under Article 246 and Entry 49 of the State List, relating to taxation on land and buildings.
• It ruled that royalty on minerals is not a tax but a contractual payment, thereby not limiting the state’s authority to impose separate land-based taxes.
• The MMDR Act cannot restrict state taxation powers over minerals, affirming the federal distribution of fiscal rights.
• The Court dismissed arguments that Parliament’s authority under Entry 50 (mineral rights taxation) could override state laws.
• Justice B.V. Nagarathna’s dissent expressed concerns about double taxation, warning that allowing both royalty and tax on mineral lands could burden the industry.

Constitutional Division of Powers on Minerals in India

• The Seventh Schedule of the Constitution separates powers between the Centre and the States.
• Entry 49 (State List): Allows taxation on lands and buildings — including mining lands.
• Entry 50 (State List): Grants states powers to tax mineral rights, but subject to parliamentary restrictions.
• Entry 54 (Union List): Empowers the Central Government to regulate mines and mineral development.
• The Mineral Area Development Authority case clarified that royalty is not a tax, thus doesn’t fall under Entry 50.
• The verdict reaffirms that states can impose taxes on mineral lands without infringing upon the MMDR Act, as taxation and regulation are distinct domains.

Historic Legal Background on Minerals in India

• The dispute began in 1992 when Bihar imposed extra taxes on mineral-bearing lands, sparking opposition from mining companies.
• A 1989 judgment in India Cements Ltd. v. Tamil Nadu mistakenly called royalty a tax.
• A 2004 five-judge bench in Kesoram Industries Ltd. v. West Bengal corrected this, saying it was a typographical error.
• The latest nine-judge bench was tasked with answering complex questions on whether royalty equates to taxation and if states can use mineral output value to determine land tax.

Implications for the Mineral Economy of India

• The ruling strengthens fiscal federalism and allows mineral-rich states — particularly in eastern India — to generate additional revenue.
• It clarifies the status of royalties, distinguishing them from taxes, and enables better financial planning by states involved in mineral extraction.
• The verdict reinforces a clear separation between contractual obligations (royalty) and statutory impositions (taxes) in the governance of minerals in India.

Understanding Royalties vs Taxes in the Mineral Sector

• Royalties are contractual payments for resource exploitation or usage, governed by lease agreements.
• Taxes are statutory, do not require consent, and are imposed for public purposes with no direct quid pro quo.
• In the context of minerals in India, royalties are not treated as tax revenue, thereby enabling states to impose additional levies on land used for mining.

The MMDR Act, 1957 and Its Evolving Role

• The Mines and Minerals (Development and Regulation) Act, 1957 provides a legal framework for:
  • Granting mineral concessions
  • Fixation of royalty rates
  • Ensuring mineral conservation
  • Regulating the mining sector for transparency and public interest
• Although it defines regulatory and royalty mechanisms, the MMDR Act does not restrict state taxation powers over mining lands.

2023 Amendments: Critical Minerals in India Take Centre Stage

• The 2023 MMDR Amendment Act focused on:
  • Removing 6 minerals from the atomic minerals list to expand private participation
  • Empowering the Centre to auction concessions for critical minerals
  • Introducing exploration licences for FDI and junior mining firms
• The amendments aim to reduce import dependency and promote domestic mining of critical minerals in India like:
  • Lithium, graphite, cobalt, rare earth elements (REEs), and titanium
  • These are crucial for clean energy technologies, semiconductors, EVs, and defense

Strategic Importance of Critical Minerals in India

• The global shift toward clean energy has made critical minerals indispensable.
• India’s Net Zero 2070 goal hinges on access to:
  • Lithium (white gold)
  • Cobalt, graphite, and REEs
• Global supply chain disruptions, like the Russia–Ukraine war, highlight the need for domestic resilience in mineral sourcing.

Defining Minerals in India: Economic and Strategic Relevance

• Minerals are naturally occurring, inorganic, crystalline substances derived from the Earth’s crust through mining or quarrying.
• They are essential for:
  • Infrastructure and manufacturing
  • Electronics and energy generation
  • Jewelry, metallurgy, agriculture, and defense
• Minerals are globally traded, and India’s mineral security is now a strategic priority.

Major Minerals in India and Leading Mining States

Conclusion: A New Chapter in the Governance of Minerals in India

The Supreme Court’s ruling is a turning point in India’s mineral governance, clarifying the distinct roles of the Centre and States in regulating and taxing the sector. As demand for critical minerals in India grows, especially under green energy and strategic imperatives, this judgment reinforces the fiscal autonomy of states — a crucial factor in harnessing India’s rich mineral resources for inclusive and sustainable development.

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