Mineral Area Development Authority & Anr. vs M/s Steel Authority of India & Anr. Etc.

Mines and Minerals (Development and Regulation) Act, 1957 – s.9 – Royalties in respect of mining leases – Constitution of India – Entry 50 List II Seventh Schedule – Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development – Scope of Entry 50 List II – Ambit of the limitations imposable by Parliament in exercise of its legislative powers under Entry 54 List I – s.9, or any other provision of the MMDR Act, if contains any limitation with respect to the field in Entry 50 List II: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Legislative power to tax mineral rights vests with the State legislatures – Parliament does not have legislative competence to tax mineral rights under Entry 54 List I, it being a general entry – Since the power to tax mineral rights is enumerated in Entry 50 List II, Parliament cannot use its residuary powers with respect to that subject-matter – Entry 50 List II envisages that Parliament can impose “any limitations” on the legislative field created by that entry under a law relating to mineral development – MMDR Act as it stands has not imposed any limitations as envisaged in Entry 50 List II – Entry 54 List I, Entry 50 List II Seventh Schedule. [Para 342b, c] – Held: (per B.V. Nagarathna, J.) (Dissenting) – Entry 50 List II dealing with taxes on mineral rights, is subject to any limitations imposed by Parliament by law relating to mineral development – 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 – Use of the expression ‘any limitations’ must be given the widest possible meaning to include a limitation in the form of ss.9 and 9A, 25 or any other provision of the MMDR Act and Rules made thereunder which act as a limitation to Entry 50 List II – Scope of the expression “any limitations” under Entry

50 List II is wide enough to include the imposition of restriction, conditions, principles as well as a prohibition by Parliament by law relating to mineral development – Thus, in view of the declaration u/s.2 of the MMDR Act made in terms of Entry 54 List I and to the extent of the provisions of the said Act, the State legislature is denuded of its powers under Enry 50 List. [Paras 40b, 41d, e] Mines and Minerals (Development and Regulation) Act, 1957 – s.9 – Royalties in respect of mining leases – Constitution of India – Entry 50 List II Seventh Schedule – Expression “subject to any limitations imposed by Parliament by law relating to mineral development” in Entry 50 List II, if pro tanto subjects the Entry to Entry 54 List I, which is a non-taxing general Entry – If there is any departure from the general scheme of distribution of legislative powers as enunciated in MPV Sundararamier’s case:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) – Legislative power to tax mineral rights vests with the State legislatures – Parliament does not have legislative competence to tax mineral rights under Entry 54 List I, it being a general entry – Since the power to tax mineral rights is enumerated in Entry 50 List II, Parliament cannot use its residuary powers with respect to that subject-matter – Entry 50 List II does not constitute an exception to the position of law laid down in M P V Sundararamier’s case. [Para 342b, c, d] – Held: (per B.V. Nagarathna, J.) (Dissenting) 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 – Use of the expression “any limitations” would mean that the taxing Entry would be subject to a non-taxing or general Entry such as in Entry

54 List I which could also be termed as a regulatory Entry – Thus, there is a departure from the general scheme of distribution of legislative powers as enumerated in MPV Sundararamier’s case 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 – Entry 50 List II is an exception to the position of law laid down in MPV Sundararamier’s case. [Paras 40c, 41b]

Mines and Minerals (Development and Regulation) Act, 1957 – ss.9, 2 – Royalties in respect of mining leases – Constitution of India – Entry 49 List II Seventh Schedule – Scope of Entry

49 List II – Entry 49 List II, if covers tax involving a measure based on the value of the produce of land – Constitutional position, if different qua mining land on account of Entry 50 List II read with Entry 54 List I:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) State legislatures have legislative competence u/Art.246 read with Entry 49 List II to tax lands which comprise of mines and quarries – Mineral-bearing land falls within the description of “lands” under Entry 49 List II – 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 – Decision in Goodricke’s case clarified to this extent [Para

342 e, f] – Held: (per B.V. Nagarathna, J.) (Dissenting) Entry 49 List II deals with taxation of lands and buildings – It does not cover taxes on mineral bearing lands – Constitutional position is different qua mineral bearing lands on account of Entry 50 List II read with Entry 54 List I and s.2 of the MMDR Act – Thus, 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 – State legislatures have legislative competence under Art.246 read with Entry 49 List II to tax lands and buildings but not lands which comprise of mines and quarries or have mineral deposits as mineral bearing lands do not fall within the description of lands (under Entry 49 List II) – Similarly, States can tax such mineral bearing lands which are not covered within the scope of MMDR Act-minor minerals, under Entry 50 List II and not under Entry 49 List II as tax on exercise of mineral rights – Thus, mineral bearing lands cannot be taxed under Entry 49 List II – Further, the yield of mineral bearing lands, in terms of quantity of mineral produced or royalty paid cannot also be used as a measure to tax such lands under Entry 49 List II – Decision in Goodricke’s case does not require any clarification – Entry 50 List II read with Entry 54 List I Seventh Schedule. [Paras 40d, 41f, g] Mines and Minerals (Development and Regulation) Act, 1957 – ss.9, 2 – Constitution of India – Entry 49 List II, Entry 50 List II Seventh Schedule – Entry 50 List II, if a specific Entry in relation to Entry 49 List II, and would consequently subtract mining land from the scope of Entry 49 List II: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) 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 List II – “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 because there is no specific stipulation under the Constitution to that effect. [Para 342g, h] – Held: (per B.V. Nagarathna, J.) (Dissenting) 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, having regard to Entry 50 List II to be read with Entry

54 List I and s.2 of the MMDR Act. [Para 40e]

Mines and Minerals – Royalty, in the nature of tax or not – Divergence between India Cement’s case and Kesoram’s case – India Cement’s case held that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State legislature because s.9 of the Central Act covers the field and the State legislature is denuded of its competence under Entry 23 List II whereas Kesoram’s case held that royalty is not a tax, but a payment made to the owner of land who may be a person and may not necessarily be the State: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) – Kesoram held that India Cement’s case was caused by “an apparent typographical error or inadvertent error” and should not be understood as a correct declaration of law – Kesoram’s case also expressed its disagreement with Mahalaxmi Fabric Mills’s case to the extent it had held that there was no “typographical error” in India Cement’s case – Kesoram’s case concurred with India Cement’s case on the aspect that cess on royalty is beyond the legislative competence of the State legislatures – Divergence on the point of law between India Cement’s case and Kesoram’s case is apparent and pertains to whether or not royalty is a tax – Thus, the royalty does not meet the characteristic requirements of a tax. [Paras 117, 121, 122] – Held: (per B.V. Nagarathna, J.) Majority decision in Kesoram is a serious departure from the law laid down by the seven-judge Bench in India Cement which was wholly unwarranted and thus, the said majority judgment is liable to be overruled and is overruled to the extent of holding that royalty is not a tax – India Cement was correctly decided wherein it was held that royalty is in the nature of tax. [Paras 42 (ii), 1.1]

Constitution of India – Legislative entries – Interpretation – Entries 49 and 50 List II in the context of mineral bearing lands – Interplay of:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Entries 49 and 50 of List II deal with distinct subject matters – Both the entries operate in different fields without any overlap – Nature of taxes under the entries are distinct – Fact that mineral value or mineral produced is used as a measure under Entry 50 List II does not preclude the legislature from using the same measure for taxing mineral bearing land under Entry 49 List II – Doctrine of generalia specialibus non derogant has no application because Entries 49 and 50 List II operate in different fields – Though Parliament can limit the taxing field entrusted to the State under Entry 50 List II through a law relating to mineral development, the limitation operates on the field of taxing mineral rights – Such a limitation cannot operate on Entry 49 List II because there is no specific stipulation under the Constitution to that effect – Constitution envisages the imposition of limitations by Parliament on the legislative field of the state of taxes on mineral rights, and not taxes on lands. [Para 339] – Held: (per B.V. Nagarathna, J.) (Dissenting) Entry 49 List II is of the widest amplitude – Mineral value or mineral produce cannot be used as a measure to tax mineral bearing land under Entry 49 List II, also, the word “lands” under Entry 49 List II cannot include mineral bearing land as well – This would amount to “double taxation”, one, by the State Legislature on the mineral bearing land under Entry 49 List II and again for conducting a mining operation which is for exercise of a mineral right u/s.9 of MMDR Act, which is Parliamentary law also paid to the State Government – This is impermissible having regard to the constitutional intent and scheme of Entries in the Lists – Thus, royalty cannot also be a measure to impose tax on mineral bearing land – State Legislature using royalty on mineral produce as a measure to impose a cess under Entry 49 List II on mineral bearing land would overlap Entry 50 List II, because minerals are extracted by virtue of mining activity which is in exercise of mineral right and taxes on mineral rights are envisaged under Entry 50 List II subject to any limitation imposed by Parliament – Thus, Entry 50 List II would have to be viewed distinctly from Entry 49 List II – If so viewed, it becomes subject to Parliamentary law in the form of MMDR Act and the rules made thereunder which would be a limitation on the power of State to tax under Entry 50 List II – Hence to get over the rigour of Entry

50 List II, States cannot resort to Entry 49 List II. [Paras 33, 34] Mines and Minerals – Dead rent – Explanation:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Dead rent acts as a deterrent against a leaseholder cornering a mining lease and keeping the mineral resources idle – Similar to royalty, dead rent is also a statutory imposition and an integral part of the mining lease, but it generally does not serve as a consideration for the removal or consumption of minerals – Dead rent is determined on the basis of the area of land covered by the lease – Imposition of dead rent ensures that the proprietor obtains a fixed rent from the lessee even if the mine remains unworked – Thus, dead rent is not in addition to royalty but an alternative – Principles applicable to royalty apply to dead rent because dead rent is imposed in the exercise of the proprietary right (and not a sovereign right) by the lessor to ensure that the lessee works the mine, and does not keep it idle, and in a situation where the lessee keeps the mine idle, it ensures a constant flow of income to the proprietor; the liability to pay dead rent flows from the terms of the mining lease; dead rent is an alternate to royalty; if the rates of royalty are higher than dead rent, the lessee is required to pay the former and not the latter; and the Central Government prescribes the dead rent not in the exercise of its sovereign right, but as a regulatory measure to ensure uniformity of rates. [Paras 99, 129] – Held: (per B.V. Nagarathna, J.) Entry 49 List II does not apply to mineral bearing lands as such lands are taxed in the form of royalty or dead rent in the context of exercise of mineral rights – Exercise of mineral rights is the basis for payment of royalty or dead rent – Insofar as extraction of minerals is concerned, being an exercise of a mineral right, royalty is payable by a holder of a mining lease and when no mining activity is carried on, dead rent is payable by such a person. [Paras 33, 41] Constitution of India – Federalism – Explanation – Distinctive elements:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Federalism is one of the basic features of the Constitution which embodies a division of powers between the units of the federation-the Union and the States – Indian federalism is defined as asymmetric because it tilts towards the Centre, producing a strong Central Government – Yet, it has not necessarily resulted in weak State governments – Indian States are sovereigns within the legislative competence assigned to them – Delicate balance of power is secured by constitutional courts by interpreting the scheme of distribution of powers – In a federal form of government, each federal unit should be able to perform its core constitutional functions with a certain degree of independence – Constitution has to be interpreted in a manner which does not dilute the federal character of our constitutional scheme – Effort of the constitutional court should be to ensure that State legislatures are not subordinated to the Union in the areas exclusively reserved for them. [Paras 48, 49] – Held: (per B.V. Nagarathna, J.) India’s postcolonial Constitution introduced a new approach to federalism which has departed from the principle that federal and regional governments should each have independence in their own sphere of authority – Distinctive elements of Indian federalism were shaped at their foundations by the desire to boost industrial development and lay the foundation for a national welfare state in a post-colonial future by preventing the consolidation of ‘‘race to the bottom’’ dynamics arising from unregulated inter-provincial economic competition – Distinctive element of Indian federalism is the combination of a strong Centre and a substantial sphere of shared Centre-State jurisdiction – Desirable balance between Central and the State Governments has to be viewed in the context of the country continuing to confront the need to promote economic growth while upholding and expanding social rights. [Paras 36, 36.3, 36.4] Mines and Minerals (Development and Regulation) Act, 1957 – s.9 – Royalty – Royalty, in nature of tax or not: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Royalty is not a tax – It is a consideration paid by a mining lessee to the lessor for enjoyment of mineral rights and to compensate for the loss of value of minerals suffered by the owner of the minerals – Liability to pay royalty arises out of the contractual conditions of the mining lease – s.9 statutorily regulates the right of a lessor to receive consideration in the form of royalty from the lessee for removing or carrying away minerals from the leased area – Rates of royalty prescribed u/s.9 does not make it a “compulsory exaction by public authority for public purposes” – s.25 allows recovery of royalty due to the Government under the MMDR Act or “under the terms of the contract” as arrears of land does not make royalty “an impost enforceable by law” – Furthermore, there is difference between royalty and a tax – Proprietor charges royalty as a consideration for parting with the right to win minerals, while a tax is an imposition of a sovereign, royalty is paid in consideration of doing a particular action, that is, extracting minerals from the soil, while tax is generally levied with respect to a taxable event determined by law, and royalty generally flows from the lease deed as compared to tax which is imposed by authority of law – Since royalty is a consideration paid by the lessee to the lessor under a mining lease, it cannot be termed as an impost – Furthermore, both royalty and dead rent do not fulfil the characteristics of tax or impost – Thus, observation in India Cement’s case that royalty is a tax is incorrect. [Paras 327, 123-130]

Mines and Minerals (Development and Regulation) Act, 1957 – s.9 – Royalties in respect of mining leases – Purpose of s.9:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) s.9 sought to remedy the disparity of royalty rates across India – Rates of royalty were primarily governed by the terms of lease prior to the enactment of the MMDR Act – Once a mining lease was entered into between a lessor and lessee, the rates of royalty would remain static during the subsistence of the lease – s.9 has enabled the Central Government to examine the rates of royalty in respect of all minerals and modulate them periodically after taking into consideration various factors, including the uniformity of mineral prices – Primary reason for empowering the Central Government to fix the rate of royalty could be traced to the Industrial Policy Resolution which underscored the active and predominant role of the State in organizing and utilizing mineral resources – State Governments were not empowered to determine royalty in order to maintain a uniform regime of royalty across India – This was intended to promote domestic industry and maintain competitive commodity prices in the international market. [Paras 77, 78] Mines and Minerals (Development and Regulation) Act, 1957 – Meaning of “royalty” – Explanation – Essential characteristics: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Royalty is generally understood as compensation paid for rights and privileges enjoyed by the grantee – It has its genesis in the agreement entered into between the grantor and grantee – Royalty is a payment made by the lessee to the lessor or proprietor of the minerals for the removal of minerals – Royalty also serves to compensate the lessor for the degradation of the value of the mine because of the extraction of minerals – Essential characteristics of royalty are that-it is a consideration or payment made to the proprietor of minerals, either government or private person, it flows from a statutory agreement (mining lease) between lessor and lessee, it represents a return for the grant of privilege (to lessee) of removing or consuming the minerals, and it is generally determined on basis of the quantity of the minerals removed. [Paras 94, 96, 98]

Mines and Minerals (Development and Regulation) Act, 1957 – s.9 – Royalty – Nature of – Calculation of royalty: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Royalty is not a tax but a statutory consideration payable by the lessee to the lessor for the exercise of mineral rights – Specification of rates of royalty with respect to major minerals under the MMDR Act limits the powers of the State Government in terms of Entry 54 List I read with Entry 23 List II – Royalty is payable u/s.9 on the removal or consumption of minerals by the lessee in the leased area – Thus, essentially royalty is payable on the dispatch of minerals from the leased area – Rates of royalty are generally calculated on per tonnage basis or ad valorem basis on the basis of the formula laid down – Royalty is calculated on the basis of the quantity of minerals extracted or removed – Yield from mineral bearing land is nothing but the quantity of mineral produced – Royalty is per se not the yield from a mineral bearing land, but the yield (mineral produced) is the important factor in determination of the rate of royalty – Moreover, royalty can be considered as an income if it is paid to a private landowner – In case minerals are vested in the State, royalty is paid to the State Government, and hence assumes the form of non-tax revenues – Thus, royalty is relatable to the yield of the mineral-bearing land as well as the income in case the minerals vest in a private person. [Paras 87, 327-332] Mines and Minerals (Development and Regulation) Act, 1957 – s.9 – If serve as a limitation on the taxing powers of State under Entry 50 List II – Expression ‘any limitation’ under Entry 50 List II, if can be extended to prohibition: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Scheme of the MMDR Act does not in itself serve as a limitation on the field of taxation under Entry 50 List II – MMDR Act empowers the Central Government to specify the rates of royalty u/s.9 r/w Second Schedule – Since royalty payable u/s.9 is not a tax on mineral rights, any limitation on the enhancement of the rates of royalty is not the imposition of a tax under Entry 50 List II – ss.9, 9A, 9B, and 9C do not impose any limitations on the powers of State to tax mineral rights under Entry 50 List II – Under Entry

50 List II, phrase “any limitations” is specifically used – Framers of the Constitution intended to empower Parliament to impose “all” and “every” possible limitation on the taxing powers of the State in the interests of mineral development, which include even “prohibition” – Thus, the expression ‘any limitations’ include the power to prohibit the States from taxing mineral rights – Overall scheme of Art. 246 r/w Entry 54 List I and Entry 50 List II makes it clear that Parliament, in the interests of mineral development, can impose “any limitations” – Purport of expression “any limitations” is wide enough to include the imposition of restrictions, conditions, principles, as well as prohibition – Constitution of India – Entry 50 List II. [Paras 229, 231, 244, 245]

Mines and Minerals (Development and Regulation) Act, 1957 – Mineral-bearing land – Measure to tax – Minerals produced, if a measure to tax mineral bearing land:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Tax on lands and buildings under Entry 49 List II is often measured with respect to the income derived from the land or building sought to be taxed – Measure for taxing land may bear a reasonable relationship to the actual or potential productivity of land – Measures such as annual value or market value provide a proximate basis to measure the income derived from land – If the State legislature utilizes the income derived from the land as a measure to quantify a tax on land, it does not trench upon the legislative domain of Union to tax income – Income merely serves as the measure to calculate the levy of taxes on land – MMDR Act does not serve as a limitation on the legislative competence of the States to tax mineral rights under Entry 50 List II, including the power to levy taxes on mineral-bearing lands under Entry

49 List II – Mineral value or mineral produce could be used as a measure of the tax on land under Entry 49 List II – Entry 50 List II pertains to taxes on mineral rights would not preclude the State legislature to use the measure of mineral value or mineral produce under Entry 49 List II – State legislature has legislative discretion to determine the appropriate measure for the purposes of quantifying taxes, so long as there is a reasonable nexus between the measure and the nature of the tax – Measure does not determine the nature of the tax – Lands under Entry 49 List II includes mineral bearing land – Mineral produce is the yield from a mineral bearing land – Since royalty is determined on the basis of the mineral produce, royalty can also be used as a measure to determine the tax on royalty – Fact that the State legislature uses mineral produce or royalty as a measure does not overlap with Entry 50 List II. [Paras 291, 294, 302, 341] Mines and Minerals (Development and Regulation) Act, 1957 – Mineral bearing land – Decoupling of minerals from land – When:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Minerals are decoupled from land only upon the exercise of mineral rights by the lessee – Although the title to minerals vests in the State Government, the mining lease transfers the interest in the mineral from the State Government to the mining lessee – During the whole process, minerals continue to remain embedded in the earth, either over or above – Thus, there is no decoupling of minerals from land – When a mining lease is granted, the lease holder necessarily has to occupy the surface rights of the area specified in the lease – Leaseholder has rights to both the minerals and surface during the subsistence of the mining lease – It cannot be said that the mineral rights are transferred from the State to the mining lessee only upon the extraction of minerals – Once the lease deed is signed, the interest in the minerals is transferred from the State Government (in case the minerals vest in the State Government) to the lessee – Interest of the lessee in the minerals continues until the determination of the lease deed – It is only upon the exercise of mineral rights by the lessee, that is removal or consumption of minerals, that the lessee is required to pay royalty – Thus, the transfer of interest in the minerals is distinct from the exercise of the mineral rights. [Paras 323, 324]

Mines and Minerals (Development and Regulation) Act, 1957 – ss.2, 4, 9, 9A, 9B, 9C, 13, 15, 25 – Royalty under the MMDR Act – Explained. (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) [Paras 62-74] Mines and Minerals (Development and Regulation) Act, 1957 – Mines and Minerals – Contours of a mining lease – Explanation: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Expressions ‘lease’ and ‘licence’ have been used in the context of mining operations in the Constitution and in the MMRD Act – “Mining lease” is defined under the MMDR Act to mean a lease granted for the purpose of undertaking mining operations and includes a sub-lease granted for such purpose – Expression “mining operations” has been defined to mean any operations undertaken for the purpose of winning any mineral – Expression “winning” means getting or extracting minerals from the mines – Under a lease deed for mining operations, the owner transfers the interest in the minerals to the lessee in lieu of the payment of rent, which usually takes the form of royalty – Under the MMDR Act, a “prospecting licence” is granted for the purpose of undertaking prospecting operations for the purpose of exploring, locating, or proving a mineral deposit – Under a prospecting licence, the licensee does not get an interest in the land or in the minerals contained therein – Licensee is only allowed to carry away a limited quantity of minerals after payment of specified royalty. [Paras 86, 87]

Mines and Minerals (Development and Regulation) Act, 1957 – Mineral Concession Rules, 1960 – Nature of a mining lease under the MMDR Act and Mineral Concession Rules: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) MMDR Act and the Mineral Concession Rules detail the procedure for the grant of mining leases in three situations-where the minerals vest in the government, where the minerals vest in a person other than the government, and where the minerals vest partly in the government and partly in a private person – Right of proprietors to grant leases and receive royalty stems from the proprietary interest in the immovable property including the minerals – MMDR Act regulates the exercise of the proprietary rights in the minerals in the larger public interest – Statute specifies the terms of the lease, but the lease deed is ultimately entered between the State Government (or the private person, as the case may be) and the lessee – Similarly, the rates of royalty are fixed by the Central Government u/s. 9, but royalty is received by the mining lessor, that is the State Government or a private person. [Paras 89, 93] Constitution of India – Federalism – Fiscal federalism, in the context of mineral resources:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Basic features of fiscal federalism is that both the Union government and the State governments ought to have adequate fiscal resources to discharge their constitutional responsibilities – List I and List II of the Seventh Schedule contain various subjectmatters under which Parliament and the State legislatures can respectively levy taxes – Purpose of such a distribution is to entrust adequate fiscal powers with the legislatures to raise revenues to meet the growing fiscal expenditures and rein in the fiscal deficit – Legislatures can formulate the principles underlying any taxing legislation, define the taxing event or the charge of tax as well the mode and manner of its implementation – As regards fiscal federalism in the context of mineral resources, not all states are equally endowed with mineral resources – Few States have greater reserves of mineral resources, resultantly, the contribution of the mining sector in the state domestic product is higher – Despite the abundance of mineral wealth, many of these states lag economically and suffer from, “resource curse” – Taxation is among the important sources of revenue for these States, impacting on their ability to deliver welfare schemes and services to the people – Fiscal federalism entails that the power of the States to levy taxes within the legislative domain carved out to them and subject to the limitations laid down by the Constitution must be secured from unconstitutional interference by Parliament. [Paras 51-54]

Constitution of India – Arts.366(28), 265 – Expression ‘tax’ – Explanation – Essential characteristics of tax: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Taxes are monetary burdens or charges imposed by legislative power upon persons, or property to raise revenues to fund public expenditure – Objects to be taxed can be taxed by the legislature according to the exigencies of its needs so long as they happen to be within the legislative competence of the legislature – Although the power of taxation is pervasive and an incidence of sovereignty, it is subject to welldefined constitutional limitations – Tax is a compulsory exaction of money by a public authority, it is imposed under statutory power without the consent of the tax payer, the demand is enforceable by law, it is an imposition made for public purposes to meet the general expenses of the state without reference to any special benefit to be conferred on the payer of the tax, and it is part of the common burden – Art. 366(28) defines “taxation” to include “the imposition of any tax or impost, whether general or local or special” – Expression “tax” u/Art.265 includes every kind of impost in the form of a compulsory exaction – Liability arising out of contract cannot be termed as an impost or tax – Consideration paid under a contract to the State Government for acquiring exclusive privileges and rights with respect to a particular activity cannot be termed as an “impost” or “tax” u/Art. 366(28) – Government may demand payments in the nature of a price or consideration for parting with its exclusive privilege to carry on activities of a particular description which is neither a tax nor a fee. [Paras 102, 104, 105, 108, 109] Constitution of India – Entry 23 List II and Entry 54 List I – Interrelationship between – “Regulation of mines” and “mineral development” – Meaning and explanation of:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) As regards, inter-relationship between Entry 54 List I and Entry 23 List II the State legislatures possess plenary legislative power in respect of regulation of mines and mineral development under Entry 23 List II; Entry 23 List II is, however, subject to the operation of Entry 54 List I; field under Entry 23 List II is subordinated to the extent to which Parliament has brought under its control the regulation of mines and development of minerals under the MMDR Act; expression of the legislative intention to cover a particular field relating to mines and mineral development excludes or denudes the legislative powers of the State with respect to that particular field; and Parliamentary intention to cover a particular field relating to the regulation of mines and mineral development and the extent to which control of the Union is regarded to be in the public interest has to be ascertained from the language of the statute – Entry 54 List I and Entry 23 List II are general or regulatory entries dealing with the same subject matter, namely of “regulation of mines and mineral development” – By making Entry 23 List II subordinate to Entry 54 List I, Constitution tilts the balance of legislative powers with respect to the regulation of mines and mineral development in favor of the Union – Expression “regulation of mines” mean the management of both the process of extracting minerals as well the place where such minerals will be extracted from sub-surface levels – MMDR Act gives shape and meaning to the expression “regulation of mines and mineral development” through its provisions and the rules – Entry 54 List I and Entry 23 List II do not use the expression “minerals” simpliciter – Entries use the term “mineral development” – As a concept, mineral development is a term of wide import – It encompasses exploitation of minerals, reduction of wastage in the beneficiation process, regulation of mining activities for ecological and environmental factors and equitable distribution of mineral resources and mining leases – Expression “mineral development” has been understood under the MMDR Act in a comprehensive manner, to include all activities and transactions relating to the working of mines, extracting of minerals, their storage and disposal, as well as the conservation of the environment. [Paras 132, 137, 138, 140, 141, 163]

Constitution of India – Entry 50 List II and Entry 54 List I – Inter-relationship between:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Entry 50 List II has two elements, the legislative field governing taxes on mineral rights is given exclusively to the states and the field given to the states is subject to any limitations imposed by Parliament by law relating to mineral development – Entry 50 List II is a taxing entry – Limitations on the field created by Entry 50 List II is however, contemplated to be created by a law which relates to mineral development – Legislative competence of Parliament to enact a “law relating to mineral development” can be traced to Entry 54 List I, a general entry – Thus, the taxing powers of the state with respect to mineral rights under Entry 50 List II can be restricted by Parliament by its regulatory power under Entry 54 List I. [Para 165]

Constitution of India – Entry 50 List II – Expression “mineral rights” – Meaning of – Taxes on mineral rights: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Constitution does not define “mineral rights” – Though the expression “mineral rights” is used in Entry 50 List II, it does not find mention in any of the other related legislative entries Entry 54 List I and Entry 23 List II – Expression has to be given its ordinary and natural meaning by adopting an interpretative approach which eschews rigidity – Mineral rights are inextricably connected to property – Any understanding of “mineral rights” must be prefaced on an understanding of the basics of property law – Right to minerals entails the right to monetize mineral resources by either consuming them or selling them to third parties – Expression “mineral rights” under Entry 50 List II envisages a bundle of rights associated with the ownership of minerals, including rights which can be transferred to lessee through a mining lease – Usually, the right to mine includes excavation of minerals and removal or consumption of the extracted minerals – Expression “mineral rights” must be construed in this spirit to ensure that the taxing powers of the State under Entry 50 List II are not unnecessarily curtailed – Breadth and scope of mineral rights has also been recognized under the MMDR Act – As regards, the “taxes on mineral rights”, it is the subject matter of Entry 50 List II – Taxable event under Entry 50 List II would relate to exercise of mineral rights – Right to receive royalty is an integral part of the mineral rights of the lessor – However, royalty is not a tax – Thus, royalty would not be comprehended within the meaning of the expression “taxes on mineral rights” – Scope of taxes on mineral rights includes taxes on the right to extract minerals, aspects relating to the exercise of mineral rights such as working the mines and dispatching minerals from the leased area – However, the legislature has to ensure that the exercise of the taxing powers relatable to the field under Entry 50 List II does not foray into a duty of excise or a tax on the sale of minerals. [Paras 170, 172, 175, 178, 179, 185, 187, 188] Constitution of India – Entry 50 List II – Limitations on the taxing power of the State under Entry 50 List II – Entry 50 List II, if constitutes an exception to the Sundararamier principle: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Entry 50 List II is unique because though it is a taxing entry, it is made subject to “any limitations imposed by Parliament by law relating to mineral development” – Thus, the taxing power of the state is capable of being controlled by a non-fiscal enactment by Parliament relating to the development of minerals – This seems to recognize that a fiscal imposition in the nature of a tax on mineral rights by a state may impact on the development of minerals – Position enunciated in Sundararamier’s case is that the field of taxation is distinct from the general subjects of legislation in the Union and State lists of the Seventh Schedule – While Entry

50 List II is sui generis, it does not constitute an exception to the Sundararamier’s principle – Entry 50 List II is subordinated only to the extent of any limitations that may be imposed by Parliament by law relating to mineral development – Unless Parliament imposes a limitation, the plenary power of the state legislature to levy taxes on mineral rights is unaffected – Question of an overlap between the taxing entry and general entry does not arise because Parliament cannot impose taxes on minerals under Entry 54 List I – There is no direct conflict between the taxing powers of the States under Entry 50 List II and regulatory powers of the Union. [Paras 190, 192, 205, 207]

Constitution of India – Taxing powers of the states – Limitations imposed by Parliament – Nature of – Determination: Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) There is a distinction between the nature of the restraints imposable by Parliament on the legislative field of the states to regulate mines and development of minerals, the Parliamentary restraints contemplated on the taxing power of the states over mineral rights – In relation to the former, distinction emerges from the language of Entry 54 List I and Entry 23 List II and as regards the latter, it is Entry

50 List II – Relationship between Entry 23 List II and Entry 54 List I is that the latter results in a denudation of the legislative field of the states to the extent envisaged by Parliament by law – Expression ‘extent’ leaves it entirely to Parliament to determine whether the extent of the control by the Union is to be total or partial – Denudation of the legislative field of the states follows such a declaration by Parliament and the extent would be determined by the MMDR Act enacted by Parliament – Entry 50 List II gives the legislative field of taxing mineral rights to the states however, subject to limitations imposed by Parliament by law relating to mineral development – Entry 50 List II does not result in the field of taxing mineral rights being conferred on Parliament, because there is no specific entry in List I giving the field of taxing mineral rights to the Union – Field of taxing mineral rights is exclusive to the states and continues to remain with them but subject to limitations imposed by Parliamentary law relating to mineral development – Parliament can determine as to how the taxing power of the states over mineral rights should be limited in order to ensure that it does not impede or retard mineral development – If Parliament does so and indicates the nature of the limitations, states are bound to abide by them while exercising the taxing power over mineral rights. [Paras 208, 210, 211] Constitution of India – Entry 50 List II – Expression ‘any limitations’ – Construction of:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Use of the expression “any” before “limitations” under Entry 50 of List II indicates that the scope of the limitations is expansive and includes “all” or “every” limitation that could be imposed by Parliament by law relating to mineral development – Expression “any” has to be construed in its context, taking into consideration the scheme, purpose, and subject matter of the enactment, or the scheme of distribution of legislative powers under the Constitution – Expression “any limitations” is indicative of the fact that Parliament has been provided with ample legislative freedom to conceive limitations or restrictions on the legislative powers of the State to tax minerals. [Para 233] Constitution of India – Taxes on mineral rights on mineral development – Impact of:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Uniformity of prices of mineral commodities ensures the objective of mineral development as envisaged under the MMDR Act – Levy of a tax on mineral rights by the State legislatures may lead to an increase in the prices of the mineral commodity in India – An increase in the rate of tax on a particular commodity cannot per se be said to impede free trade and commerce in that commodity – To counteract any adverse impact on the development of minerals in India that the Constitution has empowered Parliament under Entry 50 List II to impose limitations on the basis of which the State legislature can tax mineral rights – Parliament has the responsibility to ensure that there is no adverse effect on development of mineral rights – Legislative powers granted to the State legislatures cannot be whittled down impliedly based on the presumption that all taxes on mineral rights imposed by the State will have adverse economic consequences on mineral development – States have a constitutional and sovereign authority to exercise their taxing powers, within the bounds of the Constitution, to raise adequate revenues for the welfare of the people. [Paras 248, 249]

Constitution of India – Entry 49 List II – Taxes on lands and buildings – Principles governing ‘taxes on lands and buildings’ under Entry 49 List II – Explanation – State legislatures, if competent to levy a tax on mineral-bearing land as a unit under Entry 49 of List II:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Entry 49 List II contemplates levy of tax on land as a unit, irrespective of the use to which it is put – Thus, the State legislature is competent while designing the levy under Entry 49 List II to tax lands which comprise of mines and quarries – Mineralbearing land also falls within the description of “lands” under Entry

49 List II – State legislature has wide discretion to classify lands and levy taxes on them under Entry 49 List II – Subject of taxation in Entry 49 List II is land as a unit – Subject of tax in Entry 50 List II is the mineral rights – There is a distinction between the two legislative entries – Legislative competence of the States to tax lands under Entry 49 List II will not be affected by the MMDR Act. [Paras 275, 278-280]

Constitution of India – Arts.245, 246, 265 – Scheme of distribution of legislative powers between the Parliament and the State Legislature and constitutional limitations – Stated. (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) [Paras 29-37]

Constitution of India – Seventh Schedule – Legislative entries – Interpretation of – Stated. (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) [Paras 38, 40-47] Doctrines/Principles – Public trust doctrine – Natural resources and the public trust doctrine:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Public trust doctrine is founded on the principle that certain resources are nature’s bounty which ought to be reserved for the whole populace, for the present and for the future – State holds all natural resources, including minerals, as a trustee of the public and must deal with them in a manner consistent with the nature of such a trust – Central Government or State Government may not always be the owner of the underlying minerals – Constitution has entrusted the Union and the States with the responsibility to regulate mines and mineral development in consonance with the principles of the public trust doctrine and sustainable development of mineral resources – Entrustment to the State being subject to the power of Parliament to regulate the domain – Under the MMDR Act, the Central Government, acting as a public trustee of minerals, regulates prospecting and mining operations in public interest. [Paras 55, 57-60]

Tax/Taxation – Nature of – True test – Measure of tax and levy of tax – Nexus between:

Held: (per Dr Dhananjaya Y Chandrachud, CJI) (for himself and for Hrishikesh Roy, Abhay S Oka, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, JJ.) Among its elements tax has to provide for the charge of tax, the incidence of tax, the measure of the tax and would contain provisions in the nature of the machinery for assessment and recovery – Measure of tax is not a true test of the nature of tax – Standard adopted as a measure of tax may be a relevant consideration in determining the nature of tax, but is not conclusive – Nexus between the measure and levy of tax need not be “direct and immediate” – Nexus has to be “reasonable” and must have some relationship with the nature of levy – Reasonability of the nexus would largely depend upon the nature of the tax and the means available with the legislature to design the measure of the tax – Since the measure of the levy is a matter of legislative policy and convenience, the reasonability of the nexus between the measure and tax has to be determined by the courts on a case-to-case basis. [Paras 283, 286, 290]

Mines and Minerals (Development and Regulation) Act, 1957 – Object and scope of – MMDR Act vis-a-vis Entry 50 List II: Held: (per B. V. Nagarathna, J.) MMDR Act contemplates all manner of levies, charges, impost or demands that could be provided for having a nexus with mineral rights – Thus, the Act itself has to be construed as a limitation on the power of the States to demand or impose levies to the extent to which is stated in the Act – Though, Entry 50 List II is a taxing Entry, it would be subject to the limitations enacted by the Parliament by law under Entry 54 List I – States cannot impose levies under Entry 50 List II over and above the amount of royalty received by them under the MMDR Act – Entry

50 List II is sui generis because it is the only legislative Entry which limits the taxing powers of the State legislatures by reference to a general law – Thus, expression “mineral development” found in Entry 50 List II has to be traced to the entire architecture of the MMDR Act which serves as limitation of taxing power of the State legislature under Entry 50 List II – To read it otherwise would lead to destruction of the federal balance – Further, tax on mineral right would also include royalty as envisaged u/s.9 and other Sections of the MMDR Act and every holder of mining lease is bound to pay royalty irrespective of the owner of the mineral bearing land, in terms of s.9 read with Second Schedule to the said Act – Thus, royalty is in the nature of a tax on mineral rights – Also the MMDR Act and the Rules made thereunder is a complete Code on the regulation of mineral development – State legislature cannot, on the basis of royalty paid, levy any other tax, cess or surcharge on cess – States can only levy tax on sale of mineral as per Entry 54 List II which is not a tax on mineral rights – Moreover, Entry 50 List II is a recognition of parliamentary superiority via imposition of a limitation. [Paras 39, 39.1]

Mines and Minerals (Development and Regulation) Act, 1957 – ss.2, 9, 9A – India Cement’s case holding that royalty is a tax – Effect of overruling India Cement: Held: (per B.V. Nagarathna, J.) If royalty is not held to be a tax and the same being covered under the provisions of the MMDR Act, it would imply that despite Entry 54 List I and ss.2, 9, 9A and other provisions, taxes on mineral rights could be imposed by States over and above payment of royalty on a holder of a mining lease – Limitation that Parliament has made by law on the taxing power of a State explicitly stated in Entry 50 List II would be given a go by and the States could pass laws imposing taxes, cesses, surcharge on cess, etc. on the basis of royalty which is in addition to payment of royalty – Such levies could also be imposed under Entry 49 List II thereby making Entry 50 List II redundant which is not acceptable – There would be unhealthy competition between the States to derive additional revenue and consequently, the steep, uncoordinated and uneven increase in cost of minerals, subjecting the national market being exploited for arbitrage – Overall economy of the country would be affected adversely – This would lead to breakdown of the federal system envisaged under the Constitution in the context of mineral development and mineral rights – Overruling the judgment in India Cement would mean that all judgments akin to India Cement’s case whether prior to or subsequent thereto, stand overruled irrespective of whether they are of High Courts or this Court – Thus, all States would once again start levying taxes on mineral rights under Entry 49 List II, thereby bypassing Entry 50 List II so as to not be bound by any limitation that Parliament had imposed by law on power of the States to levy taxes on mineral rights – Parliament would have to again step in to bring about uniformity in the prices of minerals and in the interest of mineral development so as to curb the States from imposing levies, taxes on mineral rights. [Paras 35.2, 35.3]

Precedent – Typographical error in a judgment of a larger Bench – If can be questioned by smaller Benches on the basis thereof:

Held: (per B.V. Nagarathna, J.) Judgments of larger Benches cannot be questioned by smaller Benches on the basis of an imagined “typographical error” – Entire judgment must be read and understood including its under currents before negating it for what it stands – Judgment of a Court of law is not a piece of legislation but one pregnant with reasoning and it becomes the duty of a succeeding Bench considering a precedent to be cautious in opining something contrary on the premise of a “typographical error” in a judgment of a larger Bench by failing to understand the import of the reasoning – Opinion of the majority in the Kesoram’s case is per incuriam as it failed to follow the dictum in India Cement on the basis of a “typographical error” where there was none. [Para 27]