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

From the Judgment and Order dated 22.03.1999 of the High Court of Judicature at Patna, Ranchi Bench, Ranchi in C.W.J.C. No. 1885/94 (R), 178/94 (R), 2251/94 (R), 2252/94 (R), 1783/9 (R), 2591 (R), 3113/93 (R), 269/9 (R) and 268/94 (R) With Civil Appeal No. 7937 of 2019, Writ Petition (Civil) No. 512 of 2018, Civil Appeal Nos. 7938 and 7936 of 2019, Civil Appeal No. 6221 of 2008, Civil Appeal No. 5250 of 2019, Writ Petition (Civil) Nos. 729 and 1029 of 2019, Special Leave Petition (Civil) No. 16028 of 2021, Civil Appeal No. 4286 of 2023, Civil Appeal No. 5682 of 2007, Civil Appeal No.1295 of 2008, Civil Appeal Nos. 874, 8269-8271, 8268, 8267, 6135, Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1586 [2024] 7 S.C.R. 8272 and 9458 of 2013, Special Leave Petition (Civil) No.18600 of 2013, Civil Appeal No.4332 of 2013, Civil Appeal No.5329 of 2002, Civil Appeal No.4993 of 2006, Civil Appeal Nos.8273 and 8274 of 2013, Civil Appeal No.3869 of 2014, Civil Appeal No.2632 of 2013, Civil Appeal No.14685 of 2015, Civil Appeal No.6784 of 2014, Writ Petition (Civil) No.376 of 2015, Civil Appeal No.10082 of 2016, Civil Appeal Nos.886, 4588 and 205 of 2017, Civil Appeal Nos.5728-5729 of 2018, Civil Appeal Nos.4722-4724 of 1999, Civil Appeal Nos.5333, 5335-5336 and 5332 of 2002, Civil Appeal No.1352 of 2005, Civil Appeal No.1883 of 2006, Transfer Petition (Civil) No.722 of 2006, Civil Appeal Nos.4745, 4990, 5599 and 5649 of 2006, Civil Appeal Nos.378, 665 and 1180 of 2007, Transfer Petition (Civil) No.481 of 2007, Transfer Petition (Civil) No.906 of 2007, Civil Appeal No.3401, 3400 and 3402 of 2008, Civil Appeal No.8311 of 2011, Civil Appeal No.4293 of 2012, Civil Appeal No.2055 of 2009, Transfer Petition (Civil) No.951 of 2006, Civil Appeal Nos.4991 and 4992 of 2006, Special Leave Petition (Civil) No.763 of 2007, Special Leave Petition (Civil) No.15900 of 2007, Civil Appeal No.3403 of 2008, Civil Appeal No.98 of 2009, Transfer Petition (Civil) Nos.613 and 626 of 2009, Civil Appeal Nos.4479 and 4478 of 2010, Civil Appeal No.3643 of 2011, Civil Appeal Nos.4710-4721 of 1999, Civil Appeal No.2174 of 2009, Civil Appeal Nos.6497, 6498, 6137 and 7397 of 2008, Civil Appeal No.96 of 2009, Civil Appeal No.6499 of 2008, Civil Appeal No.97 of 2009 and Special Leave Petition (Civil) No.26160 of 2008 Appearances for Parties R. Venkataramani, AG, Tushar Mehta, SG, Ms.

Aishwarya Bhati, K.M. Nataraj, ASGs, Nalin Kohli, Sr. AAG, Tapesh Kumar Singh, Nachiketa Joshi, Amit Anand Tiwari, Mrs. Nilofar Khan, Shiv Mangal Sharma, Avdhesh Kumar Singh, Atul Jha, K. Parameshwar, AAGs, V.V.M.B.N.S. Pattabhiram, Vikrant Singh Bais, Ravi Sharma, DAGs, Rakesh Dwivedi, Arvind P. Datar, Dr. A.M. Singhvi, Darius J. Khambata, Sujit Ghosh, Ashok Grover, S.K. Bagaria, Kailash Vasdev, Ajit Kumar Sinha, Ravi Shankar Jaiswal, Ravi Jaiswal, Rupesh Kumar, Harish N. Salve, Ciccu Mukhopadhaya, Indrajit Mahanty, Gopal Jain S. Niranjan Reddy, S.P. Singh, Vijay Hansaria, Sr. Advs., Ms. Sansriti Pathak, Eklavya Dwivedi, Sukant Vikram, Aditya Pratap Singh, Prashant Bhardwaj, Ayush Agrawal, Mohit Paul, Vikrant Singh Bloria, Sushant Tomar, Ms. Rangoli Seth, Ms. Sanjleena Lal, Gaurav Digital Supreme Court Reports [2024] 7 S.C.R. 1587 Juneja, Aakash Bajaj, Ms. Monika Singh, Avirat Kumar, Muskan Narang, Sanjeev K. Kapoor, M/s.

Khaitan & Co., Naveen Kumar, Abhimanyu Bhandari, Ms. Roohe Hina Dua, Ms. Stuti Bisht, Arav Pandit, Nitesh Bhandari, Harshit Khanduja, Ms. Rashmi Priya, Ms. Dhanakshi Gandhi, Prabhat Kumar Rai, Shourajeet Chakravarty, Sahib Kochhar, Ms. Aprajita Bhardwaj, Randeep Sachdeva, Ms. Shreya Arora, Utkarsh Chandra, Ms. Anchal Kushwaha, Syed Shahid Hussain Rizvi, Zeeshan Rizvi, Gagan Gupta, Ram Lal Roy, Shiv Singh Yadav, Mahesh Agarwal, Ninad Laud, Anshuman Srivastava, Ankur Saigal, Chirag Nayak, Rishi Agrawala, Rajesh Kumar, M.S. Ananth, Ms. S. Lakshmi Iyer, Zubin Dash, Himanshu Saraswat, E.C. Agrawala, Dhananjay Mishra, Gokula Krishnan T, Siddharth Seem, Amit Bhandari, Ms. Ananyaa Mazumdar, Ms. Mannat Waraich, Ashray Behura, P.S. Sudheer, Rishi Maheshwari, Mrs. Shally Bhasin, Ms. Anne Mathew, Bharat Sood, Ms. Miranda Solaman, Prateek Gupta, Surender Kumar Gupta, Ms. Muskan Gupta, Prashant Rawat, Ms. Priya Mishra, Siddhartha Sinha, Mrs.

Sheela Goel, Ujjwal A. Rana, Himanshu Mehta, M/s. Gagrat & Co., K.V. Mohan, K.V. Balakrishnan, R.K. Raghavan, Praveen Kumar, Kumar Ajit Singh, Ms. Sunaina Kumar, Karuppaiah Meyyappan, Abhishek Kalaiyarasan, Shailendra Swarup, Ms. Bindu Saxena, Ms. Aparajita Swarup, Dhruv C Saxena, Umrao Singh Rawat, Ms. Shagun Sabharwal, Ms. Aashtha Bhardwaj, Pallav Mongia, Sarad Kumar Singhania, Uddyam Mukherjee, Swapnil Pattanayak, Ms. Manisha Chava, Agnibha Chatterjee, Ms. Shagun Thakur, Ms. Bln Shivani, Abhijeet Singh, Rustam Singh Chauhan, Ms. Sthavi Asthana, Ashwin Joseph, Ms. Poornima Singh, Annirudh Singh, Ms. Shreya Jain, Sumit Teterrwal, Mrinmay Bhattmewara, Ms. Samprati Bhattmewara, Vivek Gupta, Amit Singh, Rajvir Singh Bhati, Ankit Verma, Krishna Kant Dubey, Rajeev Ranjan, Varun Chugh, Adarsh Kumar Pandey, Arun Kanwa, Vignesh Singh, Divyansh Rai, Sanjay Kumar Tyagi, D.D. Thanvi, H.D. Thanvi, Nikhil Kumar Singh, Achal Singh Bule, Rishi Matoliya, Mrs.

Prabha Swami, Nikhil Swami, Ms. Divya Swami, Mrs. Kirti Renu Mishra, Mrs. Apurva Upmanyu, Gp. Capt. Karan Singh Bhati, Hemendra Sharma, Ms. Chitrangda Rastravara, Aishwary Mishra, Dhananjai Shekhwat, Shiv Autar Singh Sengar, Anirudh Singh, Dashrath Singh, Ms. Gunjan Negi, Yogeshwar Krishna, Ms. Anjali Sexena, Ms. Gagandeep, Ms. Sharmila Upadhyay, Pawan R Upadhyay, Sarvjit Pratap Singh, Ashwarya Sinha, Ms. Priyanka Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1588 [2024] 7 S.C.R. Sinha, Ms. Nandini Sen Mukherjee, Suyash Mohan Guru, T.G. Narayanan Nair, Ms. Swathi H Prasad, Ms. Samyuktha H Nair, Sunil Kumar Jain, S.K. Verma, Kunal Verma, Abhishek Sharma, Milind Kumar, Ms. Ruby Singh Ahuja, Saurav Agarwal, Saurajay Nanda, Anshuman Chowdhury, Ms. Kavya Pahwa, Shivam Chowdhury, Rajat Chhabra, Ms. Saloni Paliwal, Aman Sahani, Ms. Manjeet Kirpal, Guntur Prabhakar, Ms. Prerna Singh, Guntur Pramod Kumar, Mrs.

Yugandhara Pawar Jha, Ms. Lavanya Dhawan, Shivraj Sanjeev Pawar, Ritik Gupta, Shantanu Sagar, Prabhat Ranjan Raj, Anil Kumar, Gunjesh Ranjan, Shashwat Anand, Mrs. Divya Mishra, Vaibhav Jain, Akshay Singh, Ms. Pragya Singh, Shantwanu Singh, Ashok Kumar Singh, P.V. Yogeswaran, M/s. Lawyer’s Knit & Co., Debesh Panda, Ms. Amrita Panda, Udbhav Gady, Sri Aditya Kumar, Rahul Unnikrishnan, Ms. M. Jannani, V.D. Verma, Kanishk Aggrawal, Ojaswa Pathak, Ms. Sumita Hazarika, Neeraj Kumar Gupta, Rahul Kumar Verma, Akshay, Kaushik Choudhury, Ms. Anusha Agarwal, Shaantanu Jain, Deepanshu Jain, Achintya Kumar Sinha, Manish Jain, Ms. Rashika Swarup, Sachin Sharma, Ms. Kanika Kalaiyarasan, Saksham Garg, Jyotirmoy Chatterjee, Abhishek Kumar Pandey, Raman Chitwan Singh, Ms. Pankhuri Srivastav, Ms. Shreya Mathur, Ms. Neelam Sharma, Jatinder K. Bhatia, Gurmeet Singh Makker, Shailesh Madiyal, K. Parameshwaran, Siddhartha Dharmadhikari, Ms.

Rukhmini Bobde, Chitvan Singhal, Raman Yadav, Kartikay Aggarwal, Ms. Ameya Vikrama Thanvi, Kanu Agrawal, Raghav Sharma, Karan Lahiri, Mukesh Kumar Singh, Ms. Ruchi Kohli, Ajay Aggarwal, Adarsh Aggarwal, Rajan Narain, Sunny Choudhary, Abhimanyu Singh, Padmesh Mishra, Sandeep Sharma, Karan Bishnoi, Ms. Ruchira Goel, Abhishek Gupta, Sabarish Subramanian, Ms. Devyani Gupta, C. Kranthi Kumar, Vishnu Unnikrishnan, Ms. Tanvi Anand, Ms. Saushriya Havelia A, Naman Dwivedi, Danish Saifi, Aman Prasad, Ms. Arjoo Rawat, Khushi Mohammed, Joydeep Mukherjee, Mohd Yusuf, Mohit Gaurav, Anjum Parvez, Ms. Nilofar Khan, G.N. Reddy, T. Harish Kumar, Sandeep Kumar Jha, Ankit Roy, Nimisha Menon, Anshul Malik, Sarthak Sharma, Ayuushman Arora, Shuvodeep Roy, Kedar Nath Tripathy, Mishra Saurabh, Sunil Roy, Ms. Ritika Gambhir Kohli, Omar Ahmad, Vikram Shah, Tuhin Dey, Ms. Chetna N. Rai, Nikhil Kohli, Satyajit Mahanty, P Vamshi Rao, Abhishek Choudhury, Madhusudan Jena, Soubhagya Ranjan Pati, Aashish Saini, Ms.

Prakshi Narang, Vanshdeep Dalmia, Ms. Digital Supreme Court Reports [2024] 7 S.C.R. 1589 Natasha Dalmia, Ms. Kritika Khurana, Kushank Garg, Ms. Shrishti Jeswani, Arjun Garg, M/s. ARS Associates, Ambhoj Kumar Sinha, Priyadarshi Kumar, V.K. Verma, Ms. Ankita Sharma, Arjun Singh, Vishnu Thulasi Menon, Ms. Nandini Gore, Mrs. Manik Karanjawala, Indrajit Sinha, Ms. Sonia Nigam, Ms. Tahira Karanjawala, Akhil Abraham Roy, Rajat Dasgupta, Ms. Manvi Rastogi, Ms. Suvarna Kashyap, Vinayak Sharma, Prashant Singh, Mrs. Prerna Dhall, Piyush Yadav, Anjani Kumar Rai, S.S. Shroff, Rajeev Kumar Dubey, Ashiwan Mishra, Kamlendra Mishra, Ms. Devina Sehgal, Gaurav Kejriwal, Gitanshu Rustogi, Anmoldeep Singh, Ramendra Mohan Patnaik, Santosh Krishnan, Girish Chowdhary, Siddhant Buxy, Ms. Sonam Anand, Shaik Mohammed Haneef, Ms. Akhila Palem, Sahil Raveen, R. Krishnaamorthi, Abhisth Kumar, Syed Imtiyaz Ali, Ms. Mrinal Gopal Elker, Saurabh Singh, Vaibhav Misra, Ms.

Punam Kumari, Rohit K. Singh, Sanjeev Kumar Singh, Pritam Bishwas, Sandeep Sudhakar Deshmukh, Nishant Sharma, Rakesh K. Sharma, Harsh Parashar, Ms. Manjula Gupta, Ms. Pragati Neekhra, Aditya Bhanu Neekhra, Aniket Patel, Prem Sunder Jha, Akshat Sharma, Rutwik Panda, Ms. Nikhar Berry, Ms. Anshu Malik, Rajiv Shanker Dvivedi, Ms. Tulika Mukherjee, Ms. Ekta Bharati, Beenu Sharma, Zain A. Khan, Venkat Narayan, Ms. Sheenu Chauhan, Sanjeev Malhotra, Gaurav Jain, Ms. Abha Jain, Ms. Kavya Jhawar, Pawanshree Agarwal, Ms. Sneha Kalita, Abhinav Hansaria, Ms. Nandini Rai, Parijat Kishore, Praveen Swarup, Ameet Siingh, Ms. Pareena Swarup, Ravi Kumar, Devesh Maurya, K.P. Singh, Ms. Payal Swarup, Rohit Singh Lodhi, Nithin Chowdary Pavuluri, Gopal Prasad, Shibashish Misra, Manish Kumar Saran, Ms. Anuradha Dutt, Ms. Fereshte D. Sethna, Ms. Suman Yadav, Ms. Priyanka M.P., Haaris Fazili, Kunal Dutt, Yash Mittal, Ms. B. Vijayalakshmi Menon, Kartik Seth, Ms.

Shriya Gilhotra, Prashanth R Dixit, Abhishek Kandwal, Mahesh Bhati, Saurabh Chaturvedi, M/s. Chambers of Kartik Seth, K.R. Sasiprabhu, Jaydeep Patel, Vishnu Sharma A.S., S. Mahesh Sahasranaman, Ms. Shilpa Balani, Tushar Bhardwaj, Kumar Visalaksh, Udit Jain, Archit Gupta, Abhishek Vikas, Himanshu Sinha, Samyak Jai, M/s. Trilegal, Rajat Mittal, Sudipta Bhattacharjee, Onkar Sharma, Suprateek Neogi, Vivek Sharma, Anand Varma, Ms. Apoorva Pandey, Ms. Adyasha Nanda, Akshat Shrivastava, M.K.S. Menon, Ms. Usha Nandini V., Biju P. Raman, Shashank Menon, Amit Mital, John Thomas Arakal, Advs. for the appearing parties. Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1590 [2024] 7 S.C.R. Judgment / Order of the Supreme Court Dr Dhananjaya Y Chandrachud, CJI Judgment Table of Contents** A. Background......................................................................... B. Issues................................................................................... C. Submissions....................................................................... i.

Submissions of the petitioners.................................. ii. Submissions of the respondents.............................. D. Distribution of legislative fields relating to mines and minerals............................................................................... E. Underlying constitutional philosophy............................... i. Scheme of distribution of legislative powers and constitutional limitations........................................... ii. Interpretation of legislative entries........................... iii. Fiscal Federalism........................................................ iv. Natural resources and the public trust doctrine...... F. Whether royalty is tax....................................................... i. Royalty under the MMDR Act.................................... ii. Purpose of Section 9 of the MMDR Act...................... iii. Contours of a mining lease........................................ a.

Lease and license...................................................... b. The nature of a mining lease under the MMDR Act and the Mineral Concession Rules 1960.................. iv. Meaning of “royalty”.................................................. v. Characteristics of Tax................................................ vi. Royalty is not in the nature of tax............................. a. Prelude to India Cement........................................... b. Divergence between India Cement and Kesoram.... c. Royalty is not a tax.................................................... 9 13 14 14 18 24 29 29 35 41 45 48 48 54 56 56 61 65 68 73 73 76 80 ** Ed. Note: Pagination as per the original Judgment. Digital Supreme Court Reports [2024] 7 S.C.R. 1591 G. Inter-relationship between Entry 23 of List II and Entry 54 of List I............................................................................ i.

Meaning of “regulation of mines” and “mineral development”............................................................... ii. Analysis of Hingir-Rampur, M A Tulloch, and Baijnath Kedia.............................................................................. iii. Examination of the “extent” of the MMDR Act.......... 84 84 90 98 H. Inter-relationship between Entry 50 of List II and Entry 54 of List I............................................................................ 104 Taxes on mineral rights............................................... 106 i. a. Mineral rights duty..................................................... 106 b. Meaning of the expression “mineral rights”.............. 107 c. Taxes on mineral rights........................................... 113 ii. The limitations on the taxing power of the State under Entry 50 of List II.............................................. a.

Entry 50 of List II does not constitute an exception to the Sundararamier principle................................. b. Nature of “any limitation”........................................... 124 116 117 c. Scheme of the MMDR Act does not serve as “any limitation”................................................................... 129 134 d. Section 9 does not serve as a limitation on the taxing powers of State.............................................. “Any limitation” can extend to prohibition................... 135 e. f. Impact of taxes on mineral rights on mineral development.............................................................. 142 I. Scope of Entry 49............................................................... 146 i. Land System in India................................................... 146 ii. Tax on land and buildings........................................... 157 a. Principles governing ‘taxes on lands and buildings’...... 158 a.

States can impose tax on mineral bearing land.......... 162 iii. Measure of tax.............................................................. 166 a. Taxing mineral-bearing land...................................... 170 b. Goodricke.................................................................. 176 iv. Measure of tax on mineral-bearing land................... 180 a. Decoupling of minerals from land.............................. 180 b. Minerals as measure of tax on land......................... 188 J. Conclusions......................................................................... 198 Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1592 [2024] 7 S.C.R. A. Background

The present batch of appeals bears on the distribution of legislative powers between the Union and the States on the taxation of mineral rights. The legislative entry which lies at the core of the present reference is Entry 50 of List II of the Seventh Schedule to the Constitution. The entry deals with taxes on mineral rights subject to “any limitations imposed by Parliament by law relating to mineral development.” Regulation of mines and mineral development is enumerated under both the Union List (Entry 54 of List I) and the State List (Entry 23 of List II) of the Seventh Schedule. The entrustment of the subject to the State legislatures under Entry 23 of List II is made subject to the provisions of Entry 54 of List I.

Parliament enacted the Mines and Minerals (Development and Regulation) Act, 19571 in exercise of its legislative powers under Article 246 of the Constitution. The subject which the legislation predominantly covers is relatable to Entry 54 of List I. The MMDR Act is a comprehensive code for the regulation of mines and development of minerals. Section 9 provides that the holder of a mining lease shall pay royalty in respect of any mineral removed or consumed from the leased area at the specified rates. In India Cement Ltd. v. State of Tamil Nadu,2 a seven-Judge Bench of this Court held that royalty is tax and the state legislatures lack competence to levy taxes on mineral rights because the subject- matter is covered by the MMDR Act. The Court also held that royalty cannot be used by the State legislature as a measure of tax on mineral-bearing lands under Entry 49 of List II. Later in time, in State of West Bengal v. Kesoram Industries Ltd.3 a Constitution Bench of this Court held that the decision in India Cement (supra) stemmed from an inadvertent error and clarified that royalty is not a tax.

In the aftermath of India Cement (supra) and Kesoram (supra), State legislatures exercised their legislative powers to impose taxes on mineral-bearing land in pursuance of Entry 49 of List II by applying 1 2 3 “MMDR Act” [1989] Supp. 1 SCR 692 : (1990) 1 SCC 12 [34] [2004] 1 SCR 564 : (2004) 10 SCC 201 [71] Digital Supreme Court Reports [2024] 7 S.C.R. 1593 the mineral value or royalty as the measure of the tax.4 States such as Rajasthan5 and Uttar Pradesh6 also sought to impose environment and health cess and fees for transporting coal and coal-dust collected from mines. The constitutional validity of these levies was challenged before the High Courts on the ground that they were beyond the legislative competence of the State legislatures. The levies were also assailed on the ground that they were in violation of the law laid down in India Cement (supra).

One such matter is Civil Appeal No. 4056-64 of 1999, where the petitioners initially filed writ petitions before the High Court of Judicature at Patna challenging the validity of the Bihar Coal Mining Area Development Authority (Amendment) Act 1992 and the Bihar Mineral Area Development Authority (Land Use Tax) Rules 1994, which levied tax7 on land being used for mining. Relying on India Cement (supra), the High Court allowed the petition by holding that the tax was not within the scope of Entry 49 of List II of the Seventh Schedule. The correctness of the High Court’s decision was assailed before this Court. On 30 March 2011, a Bench of three Judges noticed the divergence between India Cement (supra) and Kesoram (supra) and referred the following questions to a Bench of nine Judges to provide a decisive ruling: a. Whether ‘royalty’ determined under Sections 9/15(3) of the MMDR Act is in the nature of tax; b.

During the course of the hearing,9 counsel for the petitioners and respondents agreed that the main questions that fall for determination by this Court could be reframed in the following terms: a. 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; b. 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? c. 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 (supra)? d. 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 9 Civil Appeal No. 4056-4064 of 1999, Mineral Area Development Authority v. Steel Authority of India, Transcript of Hearing, 27 February 2024, 8-9. Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1596 [2024] 7 S.C.R. mining land on account of Entry 50 of List II read with Entry 54 of List I? e. 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?

The Union of India has filed an affidavit stating that the issues in this reference do not involve the interpretation of Entry 53 of List I of the Seventh Schedule which pertains to oilfields, mineral oil resources, petroleum and petroleum products. Counsel on both sides have not addressed submissions on any issues pertaining to the interpretation of Entry 53 of List I. We have accordingly neither discussed nor considered any issues pertaining to Entry 53 of List I. We have circumscribed the scope of the reference to the above- mentioned issues referred to the nine-Judge Bench as reframed in the above terms. C. Submissions i. Submissions of the petitioners

Mr Rakesh Dwivedi, learned senior counsel, made the following submissions: a. Royalty is the consideration for parting with the right to work the mine and win minerals which are vested either in the Government or a private person. Section 9 of the MMDR Act statutorily determines the price to be compulsorily paid by the lessee to the lessor in lieu of the grant of rights under a mining lease. Royalty paid by the lessee under Section 9 does not meet either the criteria of a ‘tax’ or an ‘impost’ under Article 366(28) of the Constitution. Therefore, royalty is not a tax on either minerals or mineral rights; b. Entry 49 of List II - “taxes on lands and buildings” - must be construed expansively because it is not subordinated to any other entry in the Seventh Schedule. The expression “lands” in Entry 49 has been interpreted to include all kinds of lands, including mineral-bearing land. Minerals continue to remain a part of the land until they are extracted.

Mr S Niranjan Reddy, learned senior counsel, made the following submissions: a. It is a settled law that the rights to sub-soil minerals vest in the title holder of the land. The ownership to sub-soil minerals generally follows the ownership of the land, unless the owner of the land is deprived of the same by some valid legal process; b. Ordinarily, the land owner, or the mining lessor, contractually requires the lessee to pay royalty as a compensation for the loss of the value of minerals from the land. Under Section 9 of the MMDR Act, Parliament has statutorily capped the amount of royalty that can be contractually collected by the lessor. Moreover, Section 9(3) of the MMDR Act (which limits the power of the Central Government to increase the rates of royalty) does not serve as a limitation on the taxing power of the State legislatures under Entry 50 of List II; c. The Constitution is cognizant of the fact that the legislative power of the States to tax mineral rights may impede mineral development. Therefore, the Constitution has empowered Parliament to limit or restrict the taxing powers of the State legislatures under Entry 50 of List II by a law relating to mineral development; and d. The word “lands” under Entry 49 of List II includes lands of every character. The measure of a tax cannot determine the nature of tax. The productivity of land can be used as a measure for levy of taxes on lands. Resultantly, mineral produced from a land can always be used as a measure to tax lands.

Mr Vijay Hansaria, learned senior counsel, made the following submissions: a. The MMDR Act only deals with the regulation of mines and mineral development. Further, the legislation does not seek to legislate on the entire field of mines and minerals, but only to the extent provided. The levies such as royalty and dead rent payable under the MMDR Act are not in the nature of tax but only a payment for a right to enjoy the land and the usufruct of the land; b. Entry 50 of List II, being a taxing entry, has to be construed with clarity and precision. The expression “law relating to Digital Supreme Court Reports [2024] 7 S.C.R. 1599 mineral development” occurring in Entry 50 of List II has to be construed in light of Section 18 of the MMDR Act which deals with mineral development. Section 18 does not impose any express limitation on the legislative power of the states to tax mineral rights; and c. Parliament does not have the legislative powers to tax minerals rights using its residuary powers because the subject matter has been expressly enumerated in the State List.

Ms Sansriti Pathak, learned counsel, made the following submissions: a. The State, being the proprietor of minerals, can receive royalty for parting with its mineral rights and can also levy tax on the same minerals in the capacity of the sovereign; and b. The expression “any limitations” appearing in Entry 50 of List II cannot be construed to mean prohibition. Parliament can only limit the exclusive legislative powers of the State legislature to tax minerals, but cannot prohibit them. ii. Submissions of the respondents

Mr R Venkataramani, the learned Attorney General for India, made the following submissions: a. The grant of permission to undertake any activity in relation to a mineral is based on certain terms and conditions prescribed under the MMDR Act. The consideration for the grant of such permission is royalty, which in essence is the demand for parting with the privilege of working the mineral; b. It is immaterial whether royalty is designated as a tax. Any levy relating to mineral development, in so far as it is in relation to mineral rights, will serve as a limitation on the taxing powers of the State legislature under Entry 50 of List II; c. Both Entry 54 of List I and Entry 50 of List II constitute a family of entries. Taxes on minerals rights must be understood as such levies, charges, impositions or demands that are related to mineral development. Entry 50 of List II cannot be a source of authority for imposing any levy, charge, impost, or demand which is either unconnected with mineral development or in relation to any other alien purpose, such as education cess; Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1600 [2024] 7 S.C.R. d. The MMDR Act contemplates all manner of levies, charges, imposts, or demands that can be legitimately provided for having a nexus with mineral rights. Therefore, the provisions of the MMDR Act will be treated as a limitation on the power of the States to demand or impose similar levies, imposts or demands of the same nature. Although Entry 50 of List II is a taxing entry, it will be limited by a law relating to mineral development enacted under a general entry, that is, Entry 54 of List I; and e. Entry 49 of List II cannot include any matter in relation to mineral rights activities. Any levy with reference to the value of mineral produced from a mineral bearing land will be treated as a levy in relation to mineral rights.

Mr Tushar Mehta, the learner Solicitor General of India, made the following submissions: a. The only pertinent issue in this reference is whether the State Government can impose levies under Entry 50 of List II over and above the amount of royalty received by them under the MMDR Act. The State legislature’s competence to tax mineral rights under Entry 50 does not extend to taxing other aspects such as mining activities and minerals produced; b. The Central Government fixes the rates of royalty to ensure harmonized development of minerals in India. The MMDR Act exhausts the field of statutory charges and levies on minerals and thereby denudes the power of the State legislature to impose any levy relating to mineral development. The MMDR Act occupies the entire field of legislation covered by both Entries 23 and 50 of List II; c. In the context of mineral-bearing lands, the words “lands” used in Entry 49 of List II can only mean the surface of the land. It cannot be interpreted expansively to include sub-soil minerals because the subject matter of mines and minerals is covered by Entry 54 of List I and Entries 23 and 50 of List II. If mineral produce or mineral rights are used as a measure for taxation of lands under Entry 49 of List II, it will impact the Union’s powers to legislate under Entry 54 of List I to limit the taxes on mineral rights in the manner contemplated in Entry 50 of List II; and Digital Supreme Court Reports [2024] 7 S.C.R. 1601 d. Any levy imposed by the States with reference to the value of minerals produced is in pith and substance a tax on mineral rights under Entry 50 of List II. Since subject-matter of mineral rights covered by Entry 50 of List II is limited by a parliamentary law, giving an expansive reading to Entry 49 of List II by interpreting lands to include mineral deposits will lead to an overlap between the two entries.

Mr Harish Salve, learned senior counsel, made the following submissions: a. Entry 50 of List II is sui generis because it is the only legislative entry which limits the taxing power of the State legislatures by reference to a general law; b. The MMDR Act is a complete code on all aspects relating to regulation of mines and development of minerals. All mineral rights are granted according to the provisions of the central legislation regardless of whether that the minerals vest in the State Government; c. The important issue in this reference pertains to the nature of “any limitations” mentioned under Entry 50 of List II. The State legislature’s power under Entry 50 of List II is excluded if taxes on mineral rights become incompatible with mineral development as contemplated by a regulatory law enacted under Entry 54 of List I. Any levy by State legislatures under Entry 50 of List II impinges upon mineral development; d.

Dr A M Singhvi, learned senior counsel, made the following submissions: a. Royalty and dead rent are compulsory imposts under the MMDR Act, and not a result of negotiations leading to a contractual agreement. Royalty meets the criteria of tax under Article 366(28) of the Constitution; b. The legislative declaration under Section 2 of the MMDR Act denudes the States of any power to tax mineral rights under Entry 50 of List II. Even if the legislative declaration does not ipso facto exclude the legislative competence of the State legislatures under Entry 50 of List II, the MMDR Act contains specific provisions such as Sections 9, 9A, and 9B imposing taxes on mining lessees which occupy the field of taxation of mineral rights; c. The express language of Entry 50 of List II suggests that the taxing power of the State legislature is subordinated by a legislation made under Entry 54 of List I. This necessarily implies that Entry 54 of List I read with Entry 97 of List I empowers Parliament to tax mineral rights; and d. Entry 54 of List I read with Entry 97 of List I implies a sui generis and complete code on the legislative subject of regulation of mines and mineral development and taxation of minerals and mineral rights. Therefore, Entry 54 of List I and Entry 50 of List II constitute an exception to the principle laid down in M P V Sundararamier (supra). Digital Supreme Court Reports [2024] 7 S.C.R. 1603

Mr Darius Khambata, learned senior counsel, made the following submissions: a. The limitations imposed by Parliament under Entry 50 of List II need not be express, they can also be implied. Therefore, once Parliament imposes charges or levies under a law relating to mineral development, it occupies the entire field pertaining to the subject-matter of Entry 50 of List II; and b. The MMDR Act is a complete code on the regulation of mineral development, including the field of taxation or exactions on minerals and mineral rights. The scheme of the MMDR Act is such that Parliament not only imposes a tax on mineral rights, but also curtails the powers of the State legislature under Entry 50 of List II.

Mr A K Ganguly, learned senior counsel, submitted that minerals cannot constitute as a measure for tax on land because they cease to be a part of land once extracted.

Mr S K Bagaria, learned senior counsel, submitted that the totality of levies pertaining to minerals and mineral rights are comprised in Sections 9, 9A, 9B, and 9C of the MMDR Act which leave nothing for the State legislature to tax under Entry 50 of List II. Moreover, the expression ‘tax on mineral rights’ under Entry 50 of List II will not empower State legislatures to levy tax on minerals.

Mr Arvind Datar, learned senior counsel, made the following submissions: a. Since Entry 50 of List II is “subject to” any limitations imposed by Parliament by law relating to mineral development, the legislative power of the State legislature to tax mineral rights must yield to parliamentary legislation, that is, the MMDR Act. The taxing powers under Entry 50 of List II are made subject to a law made by Parliament to maintain uniformity and promote mineral development; and b. The scope of taxes on mineral rights under Entry 50 of List II is limited and only entails a taxation on the activity of excavation and mining. This has already been accounted for under the MMDR Act. The taxes on minerals produced is akin to an excise duty and can only be levied under Entry 84 of List I, and the taxes on sale of minerals can be levied under Entry 54 of List II. Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1604 [2024] 7 S.C.R.

Mr Sujit Ghosh, learned senior counsel, submitted that the sovereign right of the State legislature can be curtailed by Parliament in the interests of mineral development. Counsel further contended that the ‘aspect’ of taxation of mineral rights has been taken over by Parliament by virtue of Section 9 of the MMDR Act.

Ms Aishwarya Bhati, the Additional Solicitor-General of India, submitted that the taxing powers of the State legislatures under Entry 50 of List II is not eclipsed by a taxing power of Parliament, but by a regulatory power. The learned ASG also emphasized that the concept of inter-generational equity has to be borne in mind by this Court to balance the legislative power of the State legislatures to tax mineral rights against the need for the development of minerals. D. Distribution of legislative fields relating to mines and minerals

A mineral is an inorganic substance found either on or under the surface of the earth.10 Minerals are natural and non-renewable resources. They serve as vital raw materials for the core sectors of the economy. India produces a diversity of minerals such as coal, iron-ore, bauxite, manganese and chromite. Many industries, especially those critical to the infrastructure sector such as power, steel, cement, and aluminum, are heavily dependent on minerals. For example, coal is an essential raw material for several key industries such as iron, steel, and cement, which in turn are basic ingredients for almost all manufacturing industries and physical infrastructure.

Most of the minerals are spatially located in a few mineral rich states, namely, Andhra Pradesh, Chhattisgarh, Gujarat, Jharkhand, Karnataka, Madhya Pradesh, Orissa, Rajasthan, and West Bengal.11 10 Ramanatha Aiyar Advanced Law Lexicon (Volume 3) 3543; In Banarsi Dass Chadha v. Lt Governor, Delhi Administration (1978) 4 SCC 11 [4]. (Justice O Chinappa Reddy, on behalf of a three-Judge Bench observed: “The word “mineral” is not a term of Article. It is a word of common parlance, capable of a multiplicity of meanings depending upon the context. For example, the word is occasionally used in a very wide sense to denote any substance that is neither animal nor vegetation. Sometimes it is used in a narrow sense to mean no more than precious metals than gold and silver. Again, the word “minerals” is often used to indicate substances obtained from underneath the surface of the earth by digging or quarrying.”); V P Pithupitchai v. Special Secretary to the Government of TN (2003) 9 SCC 534 11 Ligia Norohna et al, ‘Resource Federalism in India: The Case of Minerals’ (2009) 44(8) Economic and Political Weekly 51, 52. Digital Supreme Court Reports [2024] 7 S.C.R. 1605 Since mineral resources are a shared inheritance of the people, it has always been the imperative of the Indian state to ensure equitable distribution of mineral wealth to sub-serve the common good.12 Considering the socio-economic importance of mineral resources to economic development, the Constitution has emphasized that the state shall play an important role in facilitating and regulating mining activities.

The history of the distribution of legislative powers relating to the regulation of minerals and development of mineral rights could be traced to the Government of India Act 1915-19.13 Section 45A of the GOI Act 1915 provided for the classification of subjects in relation to the functions of government as central and provincial subjects for the purpose of distinguishing the functions of the Governor-General in Council and the Indian Legislature from those of the local governments and local legislatures. Pursuant to Section 45A and Section 129A (which empowered the Governor-General to make further provisions for the regulation of certain matters by rules), the Governor-General prescribed the Devolution Rules. The Devolution Rules prescribed the distribution of the subject-matter of the regulation of mines and mineral resources in the following manner: “Part I Central Subjects

Control of mineral development in so far as such control is reserved to the Governor General in Council under rule made or sanctioned by the Secretary of State, and regulation of mines. Part II Provincial Subjects

Development of mineral resources which are Government property; - subject to rules made or sanctioned by the Secretary of State, but not including the regulation of mines.”

24. The primary aim behind the introduction of the Devolution Rules was to transfer certain responsibilities to provincial legislative assemblies.14 However, the colonial state reserved to itself almost the entirety of 12 Government of India, Ministry of Mines, ‘National Mineral Policy 2019’ 13 “GOI Act 1915” 14 See Debates in the House of Commons on the Government of India Act 1919 (3rd December 1919) Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1606 [2024] 7 S.C.R. the subject matter relating to mineral development and regulation of mines. The provincial legislatures were given limited power to the extent of development of mineral resources which were Government property. The Government of India Act 193515 retained the distribution of legislative powers between the Centre and Provinces. Section 100 of the GOI Act 1935 demarcated the legislative powers of the Federal and Provincial Legislatures.16 The relevant entries relating to mines and mineral development were as follows: “List I. – Federal Legislative List

Regulation of mines and oilfields and mineral development to which such regulation and development under a Federal control is declared by Federal law to be expedient in the public interest. List II. – Provincial Legislative List

23. Regulation of mines and oilfields and mineral development subject to the provisions of List I with respect to regulation and development under Federal control.

Taxes on mineral rights, subject to any limitations imposed by any Act of the Federal Legislature relating to mineral development.”

25. During the debates in the House of Commons on the above entries, the then Solicitor General stated that the provinces could enact their own regulations if there was any “inaction” by the Federal Legislature.17 Thus, legislative power in relation to regulation of 15 “GOI Act 1935” 16 GOI Act 1935, Section 100. (It read: Subject matter of Federal and Provincial Laws: (1) Notwithstanding anything in the two next succeeding subsections, the Federal Legislature has and a Provincial Legislature has not, power to make laws with respect to any of the matters enumerated in List I in the Seventh Schedule to this Act (hereinafter called the “Federal Legislative List”). (2) Notwithstanding anything in the next succeeding sub-section, the Federal Legislature, and subject to the preceding sub-section, a Provincial Legislature also, have power to make laws with respect to any of the matters enumerated in List III in the said Schedule (hereinafter called the “Concurrent Legislative List”). (3) Subject to the two preceding sub-sections, the Provincial Legislature has, and the Federal Legislature has not, power to make laws for a Province or any part thereof with respect to any of the matters enumerated in List II in the said Schedule (hereinafter called the “Provincial Legislative List”). (4) The Federal Legislature has power to make laws with respect to matters enumerated in the Provincial Legislature List except for a Province of any part thereof.”) 17 Government of India Bill, Seventh Schedule (Legislative Lists) Hansard (Volume 301) (13 May 1935). [The Solicitor General said: “If there is inaction at the Centre the Provinces can go ahead with their Digital Supreme Court Reports [2024] 7 S.C.R. 1607 mines and mineral development was accorded to both the Federal and Provincial Legislatures. However, the subject matter in the Provincial Legislative List was made subject to the provisions of the Federal Legislative List. The Dominion Legislature enacted the Mines and Minerals (Regulation and Development) Act 1948 in pursuance of the subject contained in Entry 36 of the Federal Legislative List.

Entry 44 of the Provincial Legislative List enumerated the subject matter of taxes on mineral rights, but made the taxing power of the Provinces subject to any legislation relating to mineral development enacted by the Federal Legislature. This scheme of the distribution of legislative powers with respect to the subject-matter of mines and mineral development as well as the taxation of mineral rights is reflected in the Constitution.

The Seventh Schedule to the Constitution enumerates the following entries pertaining to regulation of mines and mineral development and the taxation of mineral rights: “List I – Union List

Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest. List II – State List

23. Regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union.

Taxes on mineral rights subject to any limitation imposed by Parliament by law relating to mineral development.”

Although the above entries are substantially similar to the scheme under the GOI Act 1935, one of the differences lies in the removal of “oil fields” from Entry 54 of List I and Entry 23 of List II. The regulation and development of oil fields is now enumerated under own regulations and developments, but to the extent to which the Centre desires and declares by law that there shall be central regulations and control, then the subject comes out of the purely restricted Provincial field and becomes a subject of control at the Centre.”] Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1608 [2024] 7 S.C.R. Entry 53 of List I.18 The other difference is that while the GOI Act 1935 required a declaration by Federal law, the Constitution now requires a declaration by Parliament. The entry pertaining to taxes on mineral rights is largely similar to Entry 44 of the Provincial Legislative List, except for the fact that Entry 44 provided for imposition of “any limitations” by “any Act” enacted by the Federal Legislature relating to mineral development, while Entry 50 of List II does not include the expression “any Act” enacted by Parliament. Before we delve into the intricacies of the interpretation of the legislative entries, we need to bear in mind the constitutional philosophy underlying the Indian federal setup. E. Underlying constitutional philosophy i. Scheme of distribution of legislative powers and constitutional limitations

Part XI of the Constitution deals with the relations between the Union and the States. Article 245 provides that subject to the provisions of the Constitution, Parliament may make laws for the whole or any part of the territory of India and the Legislature of a State may make laws for the whole or any part of the State.19 The power to enact laws is inherently related to the sovereignty of the Union and State legislatures in their respective fields.20 While the sovereign legislative powers of Parliament and the State legislatures are plenary, they are subject to well-defined constitutional limitations. The language of Article 245 makes the exercise of legislative powers expressly subject to the provisions of the Constitution. Therefore, laws made by a legislature may be void not only for the lack of legislative power in respect of the subject-matter, but also for transgressing constitutional limitations.21 It is the duty of constitutional courts to resolve disputes regarding a breach of constitutional limits by the Union and State legislatures.22 18 Entry 53 of List I, Seventh Schedule, Constitution of India. [It reads: “53. Regulation and development of oil fields and mineral oil resources; petroleum and petroleum products; other liquids and substances declared by Parliament by law to be dangerously inflammable.”] 19 Article 245, Constitution of India 20 Jindal Stainless Steel v. State of Haryana (2017) 12 SCC 1 [617] 21 H M Seervai, Constitutional Law of India, Volume 3 (4th edn.) [22.6] 2306; State of Kerala v. Mar Appraem Kuri Company Ltd. (2012) 7 SCC 106, [41] 22 State of West Bengal v. Committee for Protection of Democratic Rights (2010) 3 SCC 571 Digital Supreme Court Reports [2024] 7 S.C.R. 1609

The scheme of distribution of legislative powers between Parliament and the State legislatures is embodied in Article 246. Article 246 is similar to Section 100 of the GOI Act 1935. Article 246 deals with the subject matter of laws made by Parliament and the Legislatures of States and is set below: “246. Subject-matter of laws made by Parliament and by the Legislatures of States – (1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to makes laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this Constitution referred to as the “Union List”). (2) Notwithstanding anything in clause (3), Parliament and, subject to clause (1), the Legislature of any State also, have the power to make laws with respect to any of the matters enumerated in List III in the Seventh Schedule (in this Constitution referred to as the “Concurrent List”) (3) Subject to clauses (1) and (2), the Legislature of any State has exclusive power to make laws for such State or any part thereof with respect to any of the matters enumerated in List II in the Seventh Schedule (in this Constitution referred to as the “State List”) (4) Parliament has power to make laws with respect to any matter for any part of the territory of India not included in a State notwithstanding that such matter is a matter enumerated in the State List.”

Article 246 confers exclusive power on Parliament to make laws with respect to any of the matters enumerated in List I (the Union List) of the Seventh Schedule. The exclusive power of the State legislatures with respect to the matters enumerated in List II is subject to the exclusive legislative powers of Parliament. In Hoechst Pharmaceuticals v. State of Bihar,23 this Court culled out the following principles underlying Article 246: 23 [1983] 3 SCR 130 : (1983) 4 SCC 45 Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1610 [2024] 7 S.C.R. a. Parliament has exclusive power to make laws with respect to the matters enumerated in List I; b. The non-obstante clause in Article 246(1) provides for predominance or supremacy of the Union legislature; c. The legislative powers of the Union legislature is not encumbered by anything contained in Articles 246(2) and 246(3) for these clauses are expressly limited and made subject to the non- obstante clause in Article 246(1); d. The State legislature has exclusive power to make laws with respect to any of the matters enumerated in List II; e. The exclusive power of the State legislature to legislate with respect to any of the matters enumerated in List II has to be exercised subject to Article 246(1), that is, the exclusive power of Parliament to legislate with respect to matters enumerated in List I; f. Consequently, in case of any conflict between an entry in List I and an entry in List II which is not capable of reconciliation, the power of Parliament to legislate with respect to a matter enumerated in List I must supersede pro tanto the exercise of power of the State legislature; and g. Both Parliament and State legislatures have concurrent powers of legislation with respect to any of the matters enumerated in List III, the law enacted by Parliament prevailing in the event of any inconsistency or conflict.

Article 245 (read with Article 246) is the source of the legislative powers of Parliament and the State legislatures. The entries in the Seventh Schedule delineate the subject matter over which the appropriate legislature can enact laws. The entries are legislative heads and not the source of legislative powers.24 A legislation could be composite in nature, drawing upon several entries in a particular list.25 Such a legislation is referred to as a “ragbag” legislation. 24 Calcutta Gas Company (Proprietary) Ltd v. State of West Bengal [1962] Supp 3 SCR 1, [8] 25 Ujagar Prints (II) v. Union of India (1989) 3 SCC 488 [53]; State of West Bengal v. Committee for Protection of Democratic Rights (2010) 3 SCC 571 [27]. Digital Supreme Court Reports [2024] 7 S.C.R. 1611

Article 254 clarifies that if the law made by a State legislature is repugnant to any provisions of a law made by Parliament with respect to any of the matters enumerated in List III, the law made by Parliament would prevail and the law made by the State legislature would be void to the extent of the repugnancy. The issue of repugnancy arises only when both the legislatures are competent to legislate on the subject with respect to List III.26 The issue of repugnancy does not arise if the legislations enacted by Parliament and the State legislatures deal with separate and distinct legislative subject matters. By virtue of Article 248, Parliament has exclusive legislative powers to make laws with respect to any of the matters not enumerated in List II or List III.27 However, how should courts deal with a situation where two legislations, enacted by Parliament and State legislature in pursuance of their respective legislative powers, appear to conflict with each other? The answer lies in Article 246 itself.

Article 246 incorporates the principle of federal supremacy.28 In Hoechst Pharmaceuticals (supra), this Court held that the words “notwithstanding anything contained in clauses (2) and (3)” in Article 246(1) and the words “subject to clauses (1) and (2)” in Article 246(3) embody that principle. The principle postulates that in case of an inevitable conflict between Union and State powers, the Union’s power of legislation over a subject enumerated in List I shall prevail over the State powers of legislation over a subject enumerated in List II and III. However, it is also settled that this principle cannot be resorted to unless there is an irreconcilable direct conflict between the entries in the Union and State Lists.29 Such a conflict must be an actual one and not a mere seeming conflict between the two entries in two lists.30

Hoechst Pharmaceuticals (supra) laid down the following principles to resolve any direct conflict between the entries in List I and List II: (i) in case of seeming conflict, the two entries should be read together without giving a narrow and restricted reading to either 26 Ch Tika Ramji v. State of U P, 1956 SCC OnLine SC 9 [26]; State of Maharashtra v. Bharat Shanti Lal Shah, (2008) 27 Article 248, Constitution of India. 28 Kishori Shetty v. The King (1949-50) 11 FCR 650 29 State of Kerala v. Mar Appraem Kuri Co. Ltd. (2012) 7 SCC 106 [39] 30 Offshore Holdings (P) Ltd. v. Bangalore Development Authority (2011) 3 SCC 139 [99] Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1612 [2024] 7 S.C.R. of them; (ii) an attempt should be made to see whether the two entries can be reconciled so as to avoid a conflict of jurisdiction; and (iii) no question of conflict arises between two Lists if the impugned legislation in pith and substance appears to fall exclusively under one list and the encroachment upon the other list is incidental.

36. Articles 245 and 246 embody the essence of Indian federalism. The division of legislative powers between Union and States is an emanation of the federal project.31 This division also serves as a constitutional limitation on legislative powers. Parliament cannot entrench upon the plenary power of the State legislatures in the ordinary course, except where the Constitution itself specifically allows it.32 The appropriate legislature must possess legislative competence to enact a law on the subject matter it seeks to legislate.

With respect to the powers of taxation, Article 265 provides that no tax shall be levied or collected except by authority of law. In Mafatlal Industries v. Union of India, a nine-Judge Bench of this Court held that the “law” mentioned under Article 265 refers to a valid law whose validity has to be determined with reference to other provisions in the Constitution.33 Therefore, with respect to taxation laws particularly, there is a constitutional requirement that the law imposing tax must be in conformity with the provisions of the Constitution, particularly Part III dealing with the fundamental rights. This is also a constitutional limitation because the appropriate legislature has to ensure that the law is in accord with the principles of equality and non-discrimination. Any legislation enacted by the legislature in excess of its constitutional powers is void.34 31 Constituent Assembly Debates, Vol. 11 (25 November 1949). [Dr. B R Ambedkar –

As to the relation between the Centre and the States, it is necessary to bear in mind the fundamental principle on which it rests. The basic principle of Federalism is that the Legislative and Executive authority is partitioned between the Centre and the States not by any law to made by the Centre but by the Constitution itself. This is what the Constitution does. The States under our Constitution are in no way dependent upon the Centre for their legislative or executive authority. The Centre and the States are co-equal in this matter. It is difficult to see how such a Constitution can be called centralism. It may be that the Constitution assigns to the Centre too large field for the operation of its legislative and executive authority than it to be found in any other federal Constitution. It may be that the residuary powers are given to the Centre and not to the States. But these features do not form the essence of federalism. The chief mark of federalism as I said lies in the partition of the legislative and executive authority between the Centre and the Units by the Constitution. This is the principle embodied in our Constitution.

] 32 See Articles 249, 250, and 252, Constitution of India. 33 [1996] Supp. 10 SCR 585 : (1997) 5 SCC 536 [25] 34 R M D Chamarbaugwalla v. Union of India (1957) SCC OnLine SC 11 [12] Digital Supreme Court Reports [2024] 7 S.C.R. 1613 ii. Interpretation of legislative entries

The structure of the legislative entries in the three Lists of the Seventh Schedule follows an express and deliberate pattern. The entries are classified into general and taxing entries.35 In the Union List, entries 1 to 81 enumerate general subject matters, while entries 82 to 92-C pertain to the powers of taxation. Similarly, entries 1 to 45 in the State List enumerate the general entries and entries 46 to 63 provide for taxing entries. The legislature does not derive the power to tax from the general entries - taxation is considered to be a distinct matter for purposes of legislative competence. The distinction between the general and taxing entries was explained by this Court in M P V Sundararamier (supra) in the following manner: “In List I, Entries 1 to 81 mention the several matters over which Parliament has authority to legislate. Entries 82 to 92 enumerate the taxes which could be imposed by a law by Parliament.

The above position of law has been expressly affirmed by the nine-Judge Bench of this Court in Jindal Stainless Ltd v. State of Haryana.36 Thus, it is an accepted principle that the subject matter of taxation is dealt with under distinct entries and, therefore, cannot be traced to a non-taxing entry. The taxing powers of Parliament and the State legislatures are mutually exclusive and clearly demarcated. There can be no overlap between the taxing powers of the Union and the States. Entries relating to taxing powers must be construed with clarity and precision to maintain exclusivity and a construction of a taxation entry which may lead to overlapping must be eschewed.37 If a taxing power is enumerated within a particular legislative list, it is automatically excluded from the purview of subject-matters in other legislative lists. The residuary power of Parliament also includes the power of making any law imposing a tax not mentioned in either List II or List III.

The legislative fields or entries in the Seventh Schedule have used general words to define and delineate the legislative powers of Parliament and State legislatures. The rule that words should receive their ordinary, natural, and grammatical meaning applicable to statutes also applies to the entries contained in the Seventh Schedule.38 It 36 Jindal Stainless Steel (supra) [120], [237.5], [639] 37 Godfrey Phillips India Ltd. v. State of UP (2005) 2 SCC 515 [46] 38 Navinchandra Mafatlal v. Commissioner of Income Tax, Bombay City (1954) 3 SCC 623 Digital Supreme Court Reports [2024] 7 S.C.R. 1615 is also a well-accepted principle that the entries should not be read in a narrow or pedantic sense but must be given their broadest meaning and the widest amplitude because they are intrinsic to a machinery of government.39 The ambit of the entries extends to all ancillary and subsidiary matters which can fairly and reasonably be said to be comprehended in them.40 Since the Seventh Schedule uses general terms, there is always a possibility of an overlap and conflict between two or more entries.

Many entries in the Seventh Schedule may appear to overlap because of the language used in the entries. The necessary corollary to the scheme of legislative distribution is that that any invasion by Parliament in the field assigned to the States and vice versa is a breach of the Constitution.41 Even though the Constitution distributes legislative powers between the Union and the States, there have been situations where a legislation purporting to deal with a subject in one list, touches on a subject in another list. To remedy such situation, the doctrine of pith and substance is used to examine whether the legislature has the competence to enact a law with regard to either of the three lists under the Seventh Schedule of the Constitution.42 There may arise situations where a legislature may frame a law that in substance and reality transgresses its legislative competence. Such a piece of legislation is called “colourable legislation” because the legislature veils its transgression by making it seem as if the legislation is within its legislative competence.43 To examine whether the legislature has transgressed its legislative competence, the substance of the legislation is material. If the subject-matter is in substance beyond the legislative powers of the legislature, the form in which the law is clothed would not save it from the vice of unconstitutionality.44 39 Hans Muller of Nurenburg v. Superintendent, Presidency Jail [1955] 1 SCR 1284; Elel Hotels & Investments Ltd v. Union of India (1989) 3 SCC 698; State of Rajasthan v. G Chawla, 1958 SCC OnLine SC 33 [8]. 40 United Provinces v Atiqa Begum, (1940) 2 FCR 110; Express Hotels (P) Ltd. v. State of Gujarat (1989) 3 SCC 677; Sardar Baldev Singh v. CIT, 1960 SCC OnLine SC 147 [20] 41 Dr. B R Ambedkar, CAD Volume 7 (4 November 1948). 42 A L S P P L Subrahmanyan Chettiar v. Muthuswami Goundan (1940) 2 FCR 188; A S Krishna v. State of Madras [1957] SCR 399 [8]; 43 K C Gajapathi Narayan Deo v. State of Orissa (1953) 2 SCC 178 [11] 44 K C Gajapathi Narayan Deo (supra) [12] Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1616 [2024] 7 S.C.R.

The Constitution has used specific expressions to resolve potential overlaps or conflicts between and among the entries in the three Lists. The entries in the Seventh Schedule have used different phraseologies to either subject or restrict their scope and ambit. Some of the legislative entries in the State List have been made subject to broad or specific limitations or restrictions with respect to the entries in the Union List or Concurrent List. This would emerge from the tabulation set out below: Phraseology used Entries in State List Subject to the provisions of any law made by Parliament Subject to the provisions of entries in List I Subject to a particular field of legislation in List I Subject to the provisions of entries in List III Subject to the provisions of List I and List III Subject to any limitations imposed by Parliament by law Other than Not including 37 2, 17, 22, 24, 33 23 26, 27, 57 13 50 7, 12, 32, 63 1, 51, 54, 66

The above table is an indication of the extent to which the legislative powers of the States have been restricted, limited, or altogether precluded. The use of the expression “other than” or “not including” serves the purpose of redacting from the ambit of the legislative power of the States to the extent suggested. Where the Constitution intends to limit or preclude the legislative powers of the State to a particular extent, it has used specific terminologies such as “other than” and “not including”.

44. Where the entries have used the phrase “subject to”, the legislative power of the State is made subordinate to Parliament with respect to either the Union List or the Concurrent List. The expression “subject to” conveys the idea of a provision yielding place to another provision Digital Supreme Court Reports [2024] 7 S.C.R. 1617 or other provisions to which it is made subject.45 Therefore, where the Constitution intends to displace or override46 the legislative powers of the States, it has used specific terminology – “subject to”. However, the Constitution has also indicated the extent to which a particular legislative entry under List II is subordinated. For instance, the subjection is either with respect to provisions of List I or List III, or it can also be to the extent of “any limitations” imposed by Parliament by law. Thus, it is imperative that the entries in List II must be read and interpreted in their proper context to understand the extent of their subordination to Union powers.

There are numerous entries in the State List where the Constitution has imposed no restrictions on the exercise of the legislative powers of the States.47 With respect to such entries, the absence of any express limitations indicates that the Constitution did not intend to fetter the legislative powers of the States.

In addition to the above terminologies, the entries in the Seventh Schedule also indicate the manner in which a restriction or limitation can be imposed on the legislative powers of the State. This assumes clarity from the following tabulation: Phraseology Used Entries Declared by or under law 23, 27, 67 of List I Declared by Parliament by law 24, 52, 53, 54, 56, 62, 63, 64 Imposed by Parliament by law of List I 50 of List II

The Constitution deploys three expressions to signify the manner in which the legislative power could be exercised by Parliament – “declared by or under law”, and “declared by Parliament by law”, and “imposed by Parliament by law” The difference in the character of these provisions can be gathered from the Constitution (Seventh 45 South India Corporation (P) Ltd. v. Secretary, Board of Revenue [1964] 4 SCR 280 [19] 46 State of Bihar v. Kameshwar Singh (1952) 1 SCC 528. [“18. […] It was said that the words “subject to the provisions of List III Entry 42” must be taken to mean that the law-making power under Entry 36 could only be exercised subject to the two conditions as to public purpose and payment of compensation, both of which are referred to in Entry 42. Those words, in my opinion, mean no more than that any law made under Entry 36 by a State Legislature can be displaced or overridden by the Union Legislature making a law under Entry 42 of List III.”] 47 See Entries 4, 5, 6, 8, 9, 10, etc., List II, Seventh Schedule, Constitution of India. Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1618 [2024] 7 S.C.R. Amendment) Act 1956 which substituted the expression “declared by Parliament by law” with “declared by or under law made by Parliament” in Entry 6748 of the Union List. The object of the amendment was to enable the delegate under the statute to make the required declaration.49 The expression “by law” means that the legislative power should be effectuated through the provisions of a statute. In comparison, “by or under law” means that the legislative intent could be effectuated either through the provisions of the statute or by any subordinate authority vested with powers in that behalf by the statute.50 It is important to note that Entry 50 of List II use the expression “by law relating to mineral development”. We will have to bear the meaning of the expression “by law” in mind to give an appropriate interpretation to the entry. iii. Fiscal Federalism

Federalism is one of the basic features of the Indian Constitution.51 Federalism embodies a division of powers between the units of the federation, that is, 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.52 The Indian States are sovereigns within the legislative competence assigned to them. The delicate 48 Entry 67, List I, Seventh Schedule, Constitution of India. [It reads – “Ancient and historical monuments and records, and archaeological sites and remains, declared by or under law made by Parliament to be of national importance.”] 49 Constitution (Seventh Amendment) Act, 1956, State of Objects and Reasons – “Clause 24 – Entry 67 of the Union List refers to “ancient and historical monuments and records, and archaeological sites and remains, declared by Parliament by law to be of national importance.

50. 53 54 55 56 57 58 Wallace E Oates, ‘An Essay on Fiscal Federalism’ (1999) 37(3) Journal of Economic Literature 1120,

1121. 59 The legislative power of Parliament to tax is enumerated in entries 82 to 92B of List I. Similarly, the legislative power of state is enumerated is enumerated in entries 46 to 62 of List II. Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1620 [2024] 7 S.C.R.

The Constitution is cognizant of the imbalance between resources at the disposal of states and the Union. The Constitution remedies the imbalance by way of intergovernmental distribution60 and grants.61 One of 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 subject-matters under which Parliament and the State legislatures can respectively levy taxes. The 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. The 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.

The subjects in respect of which the framers of the Constitution desired that there should be uniformity of law throughout the country have been enumerated under the Union List, while matters which may require laws to be made having regard to the particular needs and peculiar problems of each State have been placed under the State List.62 For instance, the State legislatures can tax the consumption or sale of electricity. Although electricity is an important raw material for many industries, the States are allowed to determine the rates of the levy by taking into consideration the particular needs of the State. By laying down a heterogenous distribution of legislative powers, the Constitution underscores that the asymmetry of our federation is an integral aspect of our federal form of governance.

Dr B R Ambedkar in his treatise on the evolution of provincial finances in colonial India observed that the cornerstone of the financial relationship between the Federal and State governments was characterized by separation of sources and contributions from the yield.63 Any dilution in the taxing powers of the State legislatures 60 Article 270(2), Constitution of India 61 Articles 273 and 275, Constitution of India 62 Khazan Chand v. State of Jammu and Kashmir (1984) 2 SCC 456 [14] 63 Dr. B R Ambedkar, The Evolution of Provincial Finance in British India: A Study in the Provincial Decentralization of Imperial Finance’ (1923) 152-171. Digital Supreme Court Reports [2024] 7 S.C.R. 1621 will necessarily impact their ability to raise revenues, which in turn will impede their ability to deliver welfare schemes and services to the people. The ability of the State Governments to invest in physical infrastructure, health, education, human capacity, and research and development is directly co-related to the raising of government revenues.64 Constitutional courts have to be cognizant of this context while adjudicating on issues affecting the taxing powers of the State legislatures.

54. While speaking of fiscal federalism in the context of mineral resources, we have to be mindful of the fact that not all states are equally endowed with mineral resources. States such as Chhattisgarh, Jharkhand, and Orissa have greater reserves of mineral resources. Resultantly, the contribution of the mining sector in the state domestic product is higher for these states.65 Despite the abundance of mineral wealth, many of these states lag economically and suffer from, what many economists refer to as, “resource curse”.66 For instance, mineral rich states such as Jharkhand, Chhattisgarh, and Orissa have lower per capita incomes than the national averages.67 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. iv. Natural resources and the public trust doctrine

The 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.68 Since these 64 65 ‘State Finances: A Study of Budgets of 2023-2024, Revenue Dynamics and Fiscal Capacity of Indian States’ Reserve Bank of India (December 2023) 28. Ligia Noronha, et al, ‘Resource Federalism in India: The Case of Minerals’ (2009) 44(8) Economic and Political Weekly 51, 53. 66 Economic Survey 2016-2017, Ministry of Finance, Government of India (January 2017) 292. (“Resource curse” refers to the phenomenon of economies with abundant natural resources having the tendency to grow less rapidly than resource-scarce economies.”) 67 Ministry of Statistics and Programme Implementation, State-wise date on per capita income’ (24 July 2023) < https://www.pib.gov.in/PressReleasePage.aspx?PRID=1942055> 68 Joseph L Sax, ‘The Public Trust Doctrine in Natural Resource Law: Effective Judicial Intervention’ (1970) Michigan Law Review 471, 484. Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1622 [2024] 7 S.C.R. resources are intrinsically important to every person in society, the State acts as a public trustee to safeguard them. In M C Mehta v. Kamal Nath,69 Justice Kuldip Singh observed that the State is the trustee of all natural resources which are by nature meant for public use and enjoyment. The learned Judge further observed that the State has a legal duty to protect natural resources which cannot be converted into private ownership.70 The environment and natural resources are national assets and subject to intergenerational equity.71 The public trust doctrine looks beyond the needs of the present generation and obligates the State to protect natural resources for future generations as well.72

While dealing with the allocation of spectrum in Centre for Public Interest Litigation v. Union of India,73 this Court held the State should distribute natural resources in consonance with the principles of equality and public trust to ensure against action detrimental to public interest. The public trust doctrine imposes restrictions and obligations on the government to protect long-established public rights over short-term private rights and private gain.74 However, the obligation extends to every person who exercises rights over natural resources to use them without impairing or diminishing the rights of people and long term interests in that property or resource.75 In Reliance Natural Resources Ltd. v. Reliance Industries,76 in the context of Article 29777 of the Constitution, this Court held that the nature of the word “vest” must be seen in the context of the public trust doctrine.78

The principle which emanates from the above discussion is that the State holds all natural resources, including minerals, as a trustee of 69 70 [1996] Supp. 10 SCR 12 : (1997) 1 SCC 388 [34] 71 M C Mehta v. Union of India (2009) 6 SCC 142 [45] 72 T N Godavarman Thirumulpad v. Union of India (2006) 1 SCC 1 [89] 73 [2012] 3 SCR 147 : (2012) 3 SCC 1 74 Fomento Resorts & Hotels Ltd. v. Minguel Martins (2009) 3 SCC 571 [55] 75 Fomento Resorts & Hotels Ltd. (supra) [55] 76 [2010] 5 SCR 704 : (2010) 7 SCC 1 [114] 77 Article 297, Constitution of India. 78 Reliance Natural Resources Ltd. (supra) [122] Digital Supreme Court Reports [2024] 7 S.C.R. 1623 the public and must deal with them in a manner consistent with the nature of such a trust.79

The Central Government or the State Government may not always be the “owner” of the underlying minerals. But the Constitution empowers both Parliament (under Entry 54 of List I) and the State legislatures (under Entry 23 of List II) to regulate mines and mineral development, the entrustment to the State being subject to the power of Parliament to regulate the domain. The 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. Under the MMDR Act, the Central Government, acting as a public trustee of minerals, regulates prospecting and mining operations in public interest.80 In the process, the legislation seeks to increase awareness of the compelling need to restore the serious ecological imbalance and protect against damage being caused to the nature.81 In Pradeep S Wodeyar v. State of Karnataka,82 one of us (Justice D Y Chandrachud) observed that the essence of the MMDR Act is to “protect humankind and every species whose existence depends on natural resources from the destruction which is caused by rapacious and unregulated mining.” The Court noted that the restrictions under Section 4 of the MMDR Act are intrinsically meant to protect the environment and communities who depend on the environment.

The principle that the Union and State Governments act as public trustees of mineral resources has been incorporated in the MMDR Act. Section 4-A empowers the Central Government to prematurely terminate a prospecting license, exploration license, or mining lease, after consultation with the State Government in the interests of (i) the regulation of mines and mineral development; (ii) preservation of the natural environment; (iii) control of floods; (iv) prevention of pollution; (v) avoiding danger to public health or communications; (vi) ensuring the safety of buildings, monuments or other structures; (vii) conservation of mineral resources; and (viii) maintaining safety 79 Natural Resources Allocation, In re, Special Reference No. 1 of 2012 (2012) 10 SCC 1 [88] 80 State of Rajasthan v. Gotan Lime Stone Khanji Udyog (P) Ltd. (2016) 4 SCC 469 [29]; Orissa Mining Corporation Ltd. v. Ministry of Environment & Forests (2013) 6 SCC 476 [58] 81 State (NCT of Delhi) v. Sanjay (2014) 9 SCC 772 [32] 82 [2021] 11 SCR 985 : (2021) 19 SCC 62 [49.3] Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1624 [2024] 7 S.C.R. in the mines or for such other purposes.83 Moreover, the MMDR Act now mandates grant of mining leases,84 exploration licences,85 and composite licences86 in respect of notified minerals through the process of auction. The Central Government is empowered to prescribe the terms and conditions subject to which the auction shall be conducted.

The regulatory regime under the MMDR Act recognizes the important role of the state in regulating mines and mineral development. This emerges from the stand point of the following perspectives: (i) the State is a public trustee of natural resources, including minerals; (ii) pursuant to its role as a public trustee, the State has been empowered to regulate prospecting and mining operations; (iii) the provisions of the statute reflect the priority of the state to regulate mining and related activities to ensure sustainable mineral development; (iv) prospecting and mining operations may be carried out by both the government as well as private lessees bearing in mind the public interest; and (v) the Government has to ensure that mineral concessions are granted in a fair and transparent manner.

Having encapsulated the broad drift of the constitutional and statutory provisions, we now deal with the issues arising in this reference in the ensuing segments. F. Whether royalty is tax i. Royalty under the MMDR Act

The MMDR Act was enacted by Parliament in exercise of its legislative power derived from Article 246 read with Entry 54 of List I. The Act seeks to provide for the regulation of mines and development of minerals under the control of the Union. Section 2 contains a declaration in terms of Entry 54 of List I, providing that “it is expedient in the public interest that the Union should 83 See State of Haryana v. Ram Kishan (1988) 3 SCC 416 [7]. [This Court observed that Section 4-A

was enacted with a view to improve the efficiency in this regard and with this view directs consultation between the Central Government and the State Government. The two governments have to consider whether premature termination of a particular mining lease shall advance the object or not, and must, therefore, take into account all considerations relevant to the issue, with reference to the lease in question.

] 84 Section 10B, MMDR Act 85 Section 10BA, MMDR Act 86 Section 11, MMDR Act Digital Supreme Court Reports [2024] 7 S.C.R. 1625 take under its control the regulation of mines and the development of minerals to the extent hereinafter provided.” 87 The declaration indicates that Parliament intends to take the regulation of mines and development of mines under the control of the Union to the extent indicated in the statute.

Chapter II of the MMDR Act deals with general restrictions on undertaking prospecting and mining operations. Section 4 provides that no person shall undertake any reconnaissance, prospecting or mining operations in any area except under and in accordance with the terms and conditions of a reconnaissance permit; prospecting licence; exploration licence; or mining lease granted under the Act. It also provides that no mineral concession shall be granted otherwise than in accordance with the provisions of the Act and the rules made under it.

Section 9 deals with royalties in respect of mining leases. Section 9(1) provides that the holder of a mining lease granted before the commencement of the Act shall, notwithstanding anything contained in the instrument of lease or in any law in force at the commencement of the statute, pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area after such commencement, at the rates of royalties prescribed under the Second Schedule. The non-obstante clause is only applicable to mining leases granted before the commencement of the MMDR Act.

Section 9(2) provides that the holder of a mining lease granted after the commencement of the MMDR Act is also liable to pay royalty in respect of any mineral removed or consumed by him or by his agent, manager, employee, contractor or sub-lessee from the leased area at the rate specified in the Second Schedule. Section 9(3) empowers the Central Government to amend the Second Schedule to enhance or reduce the rate at which royalty shall be payable in respect of minerals enumerated in the Second Schedule. However, it also provides that the enhancement in the rate of royalty in respect of any mineral shall not be done more than once during any period of three years. The then Minister of Mines and Oil (Mr K D Malviya) stated during the Lok Sabha debate preceding the passage of the Bill 87 Section 2, MMDR Act. Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1626 [2024] 7 S.C.R. that the purpose of capping further increases in the rates of royalty was to ensure financial security to the private sector.88

The rates of royalty payable in respect of minerals in the Second Schedule of the MMDR Act are computed either on an ad valorem basis at a specified percentage of the average sale price or at specific rates on per tonnage basis. While Section 9 authorizes the charging of royalty, the Second Schedule provides the method of computation. The rate of royalty and method of computation differ from mineral to mineral. This Court has held that the Second Schedule has to be read as a part and parcel of Section 9.89

The process of mining generally involves two stages: (i) extraction of the ores (also known as run-of-mine mineral) from the earth; and (ii) mineral beneficiation which entails separating the mineral from their ores. Rule 64-B of the Mineral Concession Rules 1960 provides for charging of royalty in case of minerals subjected to processing. It provides that if the processing of run-of-mine mineral is carried out within the leased area, royalty shall be chargeable on the processed mineral removed from the leased area. In case run-of-mine mineral is removed from the leased area to a processing plant located outside the leased area, the royalty shall be chargeable on the unprocessed run-of-mine mineral and not the processed product. Thus, royalty is payable on removal of the mineral from the boundaries of the leased area.90 Rule 64D of the Mineral Concession Rules 1960 deals with the manner of payment of royalty on minerals on ad valorem basis.

Section 9A deals with payment of dead rent by the lessee. It provides that the holder of a mining lease shall pay to the State Government dead rent at such rate as may be prescribed in the Third Schedule. However, where the holder of the mining lease also becomes liable to pay royalty under Section 9, such person shall be liable to pay 88 Mr K D Malviya, Lok Sabha Debates, Volume X (9th December to 21st December 1957) 7123. (The Minister stated: “We gave consideration to the question of what should be the minimum time which could give a sense of security to the private sector, so that they could invest their money and have a fairly reasonable view of their investment and production programmes. Suppose we took powers to reduce or increase the royalties every six months, it will make the position very insecure from their point of view. As long as we want a mixed pattern of economy to go on and the private sector to flourish, surely my hon friend does not expect me to put a sense of insecurity in the mind of the private sector, when every six months they will have to ask “look here. Are you going to increase the royalty or are you going to decrease it’ What are you going to do?”.) 89 National Mineral Development Corporation Ltd. v. State of M.P. (2004) 6 SCC 281 [23] 90 Tata Steel Ltd. v. Union of India (2015) 6 SCC 193 [71] Digital Supreme Court Reports [2024] 7 S.C.R. 1627 either royalty or dead rent, whichever is higher. The dead rent is calculated on a rate per hectare basis as specified under the Third Schedule. Section 9A was inserted by an amendment in 1972 with a two-fold purpose, namely to: (i) provide a statutory basis for calculation of dead rent; and (ii) prohibit the Central Government from enhancing the rate of dead-rent more than once during any period of three years.91

Section 9B provides for establishment of the District Mineral Foundation92 in any district to work for the interest and benefit of persons and areas affected by mining related operations. The purpose of Section 9-B and the object of the DMF is to further the cause of social justice for those affected by mining related operations, such as tribals who may be dislocated or displaced from their habitat.93 Section 9B(5) provides that the holder of a mining lease shall pay, in addition to the royalty paid under Section 9, an amount which is equivalent to such percentage of the royalty as may be prescribed by the Central Government.

Section 9C provides for the establishment of a non-profit autonomous body called the National Mineral Exploration Trust94 for the purposes of regional and detailed exploration in such manner as may be prescribed by the Central Government. Section 9C(4) mandates the holder of a mining lease to pay a sum equivalent of two percent of the royalty paid in terms of Section 9 to the Trust. The purpose of creating the NMET is to use the funds accrued from mining lease- holders for encouraging exploration.

Section 13 authorizes the Central Government to make rules regulating the grant of mineral concessions in respect of minerals and for purposes connected therewith. Section 13(2) lists various matters in respect of which the Central Government can make rules. A similar power is vested with the State Government under Section 15 to make rules with respect to minor minerals. Section 25 empowers the Government to recover rent, royalty, tax, fee or other sum due to the Government under the Act as arrears of land revenue. 91 D K Trivedi & Sons v. State of Gujarat (1986) Supp. SCC 20 [45] 92 “DMF” 93 Federation of Indian Mineral Industries v. Union of India (2017) 16 SCC 186 [43] 94 “NMET” Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1628 [2024] 7 S.C.R.

The Central Government has framed the Mineral Concession Rules 1960 in exercise of the powers conferred by Section 13. Rule 31 of the Mineral Concession Rules 1960 provides that the lease deed shall be executed between the lessor and lessee in terms of the Form K. According to the recitals of Form K, the State Government executes the lease deed in favor of the lessor

in consideration of the rents and royalties, covenants and agreement by and in these presents and the Schedule hereunder written reserved and contained and on the part of the lessee/lessees to be paid observed and performed.

Further, all the mine beds/veins/seams with respect to specified minerals lying and being in or under lands are demised by the State Government to the lessee together with the liberties, powers, and privileges to be exercised or enjoyed in connection with the demise. The recitals indicate that the lease deed serves as a statutory agreement between the State Government, being the lessor, and the lessee.

Part V of Form K deals with rents and royalties reserved by the lease and specifies the rate and mode of payment of dead rent, royalty, surface rent, and the water rate. This part mandates the lessee to pay royalty to the State Government at the rates prescribed by the Central Government in the Second Schedule to the Act.95 Part VI contains provisions relating to rents and royalties and provides for the mode of computing royalty: “Mode of computation of royalty

2. For the purposes of computing the said royalties the lessee/lessees shall keep a correct account of the mineral/ minerals produced and dispatched. The accounts as well as the weight of the mineral/minerals in stock or in the process of export may be checked by an officer authorized by the Central or State Government.”

Part VII contains the covenants of the lessee/lessees. The lessee undertakes to pay the rent, water rate, and royalties specified 95 Mineral Concession Rules 1960, Form K, Part V. It reads: [

Rate and mode of payment of royalty 3. Subject to the provisions of clause 1 of this Part, the lessee/lessees shall during the subsistence of this lease pay to the State Government at such times and in such manner as the State Government may prescribe royalty in respect of any mineral/minerals removed by him/them from the leased area at the rate for the time being specified in the Second Schedule to the Mines and Minerals (Development and Regulation) Act, 1957

] Digital Supreme Court Reports [2024] 7 S.C.R. 1629 under Parts V and VI in addition to the payment of taxes, rates, assessments and impositions being in the nature of public demands from time to time. Party VIII contains the covenants of the State Government. It provides that a lessee paying the rents, water rate, and royalties may quietly hold and enjoy the rights and premises during the term of the lease deed without unlawful interruption from the State Government. ii. Purpose of Section 9 of the MMDR Act

The regime of mineral licensing prior to the enactment of the MMDR Act was governed by the Mines and Minerals (Regulation and Development) Act 194896 read with the Mineral Concession Rules 1948. Under the previous regime, all grants and permissions (such as prospecting licences97 and mining leases98) were approved and issued by the State Government. The Industrial Policy Resolution of 1956 proposed an active role for the State in setting up new industrial undertakings to achieve “planned and rapid development.” 99 Minerals such as coal, lignite, mineral oils, iron ore, copper, zinc, and atomic minerals were exclusively reserved for the State, while the private sector was allowed to participate along with the public sector in case of minor minerals. The MMDR Act was enacted in pursuance of the above goals stated in the Industrial Policy Resolution. Another important consideration behind the enactment of the MMDR Act was to revise old and outmoded mining lease agreements and allow the private sector reasonable encouragement to develop mines and minerals.100 Through the MMDR Act, both the Central Government, and in case of minor minerals, the State Government, have been assigned a greater responsibility of development of minerals in India.

An important distinction between the MMRD Act 1948 and the MMDR Act which replaced it is that the former did not contain a provision similar to Section 9 of the subsequent legislation. Nevertheless, provisions pertaining to royalty were included in the Mineral Concession Rules 1948 as part of the essential conditions of a mining lease.102 At the introduction of the Mines and Minerals (Regulation and Development) Bill in Parliament the then Minister of Mines explained the legislative intent in the following terms:

The existing Act did give authority to the Government through rules to modify the rates and the quantum of royalty that was to be charged by the State Government. We have taken this opportunity to put a maximum limit also. With regard to the time also, at that time there was no limit and it could not be changed so long as the agreement lasted. But now considering all the conditions that prevail these days, we thought that the Government should have the right to examine the whole structure of the rates of royalty and see whether it was desirable to introduce a change in the royalty by way of either an increase or a decrease. If it was considered desirable to increase it, the Government would recommend an increase. If it was desirable to reduce it, a reduction might be made.

103 (emphasis added)

The Minister further stated that allowing State Governments to fix the rates of royalty “will not be a healthy feature for trade in that particular commodity.” 104 Section 9 sought to remedy the disparity of royalty rates across India.105 101 Ibid, 7124 102 Rule 41, Mining Concession Rules 1948. 103 Lok Sabha Debates, Volume VIII (11th November to 22nd November, 1957, Third Session) 395. 104 Ibid, 462 105 K P Varghese v. ITO (1981) 4 SCC 173 [8]. It was observed that

[…] the speech made by the Mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted.

Digital Supreme Court Reports [2024] 7 S.C.R. 1631

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. Section 9 of the MMDR Act 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. The 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. The 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.106 iii. Contours of a mining lease a. Lease and license

Article 31A of the Constitution was inserted by the Constitution (First Amendment) Act 1951 to deal with the saving of laws providing for acquisition of estates:

31A. Saving of law providing for acquisition of estates, etc – Notwithstanding anything contained in article 13, no law providing for – […] (e) the extinguishment or modification of any rights accruing by virtue of any agreement, lease or licence for the purpose of searching for or winning, any mineral or mineral oil, or the premature termination or cancellation of any such agreement, lease or licence, shall be deemed to be void on the ground that it is inconsistent with, or takes away or abridges any of the rights conferred by article 14 or article 19.

(emphasis added) 106 Lok Sabha Debates, Volume VIII (11th November to 22nd November, 1957, Third Session) 463 Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1632 [2024] 7 S.C.R.

In Gujarat Pottery Works v. B P Sood, Controller of Mining Leases for India,107 a Constitution Bench of this Court held that the object of Article 31-A(1)(e) was to make laws providing for the extinguishment or modification of leases in connection with mineral rights immune from the provisions of Articles 14, 19, and 31.

The expressions ‘lease’ and ‘licence’ have been used in the context of mining operations in the Constitution and in the MMRD Act. Therefore, it is important to understand the meaning of these expressions in their general legal sense to appreciate their application to mineral operations.

A “lease” connotes a transfer of a right of enjoyment in immoveable property for a certain time in lieu of consideration.108 Section 105 of the Transfer of Property Act 1882 defines a lease of immoveable property as a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms.109 The provision defines ‘lessor’, ‘lessee’, ‘premium’, and ‘rent’. The “transferor is called the lessor, the transferee is called the lessee, the price is called the premium, and the money, share, service or other thing to be so rendered is called the rent.” This Court has interpreted the expression “rent” widely to mean any payment for the use or occupation of land or building including the payment by a lessee in respect of the use or occupation of any land or building.110

According to Section 3(26) of the General Clauses Act 1897, immoveable property is defined to include land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth.111 Section 2(6) of the Registration Act defines immoveable property to include land, buildings, hereditary allowance, rights of way, lights, ferries, fisheries, or any other benefit to arise out of land, and things attached to earth, or permanently 107 [1967] 1 SCR 695 108 Mulla on the Transfer of Property Act 1882 (13th edn) 109 Section 105, Transfer of Property Act 1882 110 State of Punjab v. British India Corporation [1964] 2 SCR 114 [15] 111 Section 3(26), General Clauses Act 1897. Digital Supreme Court Reports [2024] 7 S.C.R. 1633 fastened to anything which is attached to the earth, except for standing timber, growing crops, and grass.112 A mineral is also a benefit arising out of land. The right to carry out mining operations to extract minerals under a mining lease has been held by this Court to be a right to enjoy immoveable property within the meaning of Section 105.113

The expression “licence” is defined in the Indian Easements Act 1882 as follows: “52. “License” defined. – Where one person grants to another, or to a definite number of other persons, a right to do, or continue to do, in or upon the immoveable property of the grantor, something which would, in the absence of such right, be unlawful, and such right does not amount to an easement or an interest in the property, the right is called a licence.” 114

In Associated Hotels of India Ltd v. R N Kapoor,115 Justice K Subba Rao (as the learned Chief Justice then was) observed that a lease creates an interest in property, while a licence only permits another to make use of the property, whose legal possession continues to remain with the owner. A lease envisages and transfers an interest in the demised property creating a right in rem in favour of the lessee, while a licence only makes an action lawful which without it would be unlawful.116

Under the MMDR Act, a “prospecting licence” is granted for the purpose of undertaking prospecting operations.117 Prospecting operations are defined to mean any operations undertaken for the 112 Section 2(6), Registration Act 1908 113 State of Karnataka v. Subhash Rukmayya Guttedar, (1993) Supp. 3 SCC 290 [6]; Sri Tarkeshwar Sio Thakur jiu v. Dar Dass Dey (1979) 3 SCC 106 [37] 114 Section 52, Indian Easements Act 1882 115 [1960] 1 SCR 368, [28]. [

28. […] The following propositions may, therefore, be taken as well established: (1) To ascertain whether a document creates a licence or lease, the substance of the document must be preferred to the form; (2) the real test is the intention of the parties – whether they intended to create a lease or a licence; (3) if the document creates an interest in the property, it is a lease; but, if it only permits another to make use of the property, of which the legal possession continues with the owner, it is a licence; and (4) if under the document a party gets exclusive possession of the property, prima facie, he is considered to be a tenant; but circumstances may be established which negative the intention to create a lease.

] 116 Mangal Amusement Park Private Ltd. v. State of Madhya Pradesh (2012) 11 SCC 713 [15] 117 Section 3(g), MMDR Act Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1634 [2024] 7 S.C.R. purpose of exploring, locating, or proving a mineral deposit.118 Chapter III of the Mineral Concession Rules 1960 deals with the grant of prospecting licences in respect of land in which the minerals vest in the government. Form F contained in the Mineral Concession Rules 1960 states that under a prospecting licence, the State Government grants to the licesee the sole rights to enter upon lands and to search, win, carry away or dispose of minerals won. Rule 14 read with Schedule III allows the prospecting licensee to win and carry away a limited quantity of minerals in lieu of the payment of specified royalty. Under a prospecting licence, the licensee does not get an interest in the land or in the minerals contained therein. The licensee is only allowed to carry away a limited quantity of minerals after payment of specified royalty.119 Even a prospecting licensee has to pay royalty to the State Government for carrying away the minerals won during prospecting operations.

A “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.120 The expression “mining operations” has been defined to mean any operations undertaken for the purpose of winning any mineral. The expression “winning” has been explained by this Court to mean getting or extracting minerals from the mines.121 In Sri Tarkeshwar Sio Thakur Jiu v. Dar Dass Dey & Co,122 Justice R S Sarkaria observed that the expression “mining operations” is expansive, so as to comprehend every activity by which the mineral is extracted or obtained from the earth irrespective of whether such activity is carried out on the surface or in the bowels of the earth. Section 3(fa) defines “production” or any derivative of the word “production” to mean the winning or raising 118 Section 3(h), MMDR Act 119 Mineral Concession Rules 1960, Schedule III 120 Section 3(c), MMDR Act 121 Gujarat Pottery Works v.

This segment indicates that 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. To answer whether this payment is akin to a tax, we must understand the nature of a mining lease under the MMDR Act. b. The nature of a mining lease under the MMDR Act and the Mineral Concession Rules 1960

The MMDR Act and the Mineral Concession Rules 1960 detail the procedure for the grant of mining leases in three situations: first, where the minerals vest in the government;124 second, where the minerals vest in a person other than the government;125 and third, where the minerals vest partly in the government and partly in a private person.126 Chapter IV of the Mineral Concession Rules 1960 (containing Rules 22 to 40) deals with the grant of mining leases in respect of land in which the minerals vest in the government. Rule 22(1) provides that an application for the grant of a mining lease in respect of land in which the minerals vest in the government shall be made to the State Government. Rule 27 provides the conditions which are applicable to mining leases under Chapter IV. Rule 27(1)(c) provides that the lessee shall pay either dead rent or royalty (whichever is higher) to the State Government.127 Rule 27(1)(d) deals with payment of surface rents, water rents, etc. by the lessee to the State Government.128 Rule 27(2) allows the State Government to 123 Section 3(aa), MMDR Act 124 Chapters II, III, IV, and IVA of Mineral Concession Rules 1960 125 Chapter V, Mineral Concession Rules 1960 126 Rule 53, Mineral Concession Rules 1960 127 Rule 27(c), Mineral Concession Rules 1960. 128 Rule 27(d), Mineral Concession Rules 1960 Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1636 [2024] 7 S.C.R. include such other conditions as it may deem necessary in regard to matters enumerated therein. Rule 27(3) allows the State Government, either with the previous approval of the Central Government or at the instance of Central Government, to impose such further conditions as may be necessary in the interests of mineral development.

Chapter V (containing Rules 41 to 52) deals with the procedure for obtaining prospecting licences or mineral lease in respect of land in which the minerals vest in a person other than the Government. Unlike Rule 22(1), the provisions of Chapter V do not require the lessee to make an application to the State Government. Rule 45 pertains to the conditions of mining leases with respect to minerals vesting in private persons. The relevant part of Rule 45 is produced below: “45. Conditions of mining lease – Every mining lease shall be subject to the following conditions – (i) the provisions of clauses (b) to (l) and (p) to (i) of sub-rule (1) of Rule 27 shall apply to such leases with the modification that in clauses (c) and (d) for the words “State Government” the word “lessor” shall be substituted; […] (iii) the lease may contain such other conditions, not being inconsistent with the provisions of the Act and these rules, as may be agreed upon between the parties; (iv) if the lessee makes any default in payment of royalty as required by Section 9 or commits a breach of any of the conditions of the lease, the lessor shall give notice to the lessee requiring him to pay the royalty or remedy the breach, as the case may be, within sixty days from the date of the receipt of the notice and if the royalty is not paid or the breach is not remedied within such period, the lessor without prejudice to any proceeding that may be taken against the lessee determine the lease; (v) the lessee may determine the lease at any time by giving not less that one year’s notice in writing to lessor.”

Rule 45(i) provides that certain specific conditions which apply under Rule 27 to mining leases in respect of minerals which vest in the Government are also applicable to leases of minerals vesting Digital Supreme Court Reports [2024] 7 S.C.R. 1637 in private persons. While under Chapter IV the State Government can stipulate additional conditions, Rule 45(iii) of Chapter V provides that the lease may contain such other conditions, not being inconsistent with the provisions of the MMDR Act and the Mineral Concession Rules, as may be agreed upon between the parties. If the lessee of a mining lease granted under Chapter IV, were to default in the payment of royalty or dead rent or commit a breach of any conditions of the lease the State Government is empowered to determine the lease. In case of a lease governed by Chapter V, the lessor is empowered to determine the mining lease if the lessee defaults in payment of royalty or commits a breach of any of the conditions of the lease. These differences indicates that in case of a mining lease under Chapter V of Mineral Concession Rules: (i) the State Government is not the lessor (that is the proprietor of the minerals who is a private person); and (ii) royalty, dead rent, and other rents are to be payable to the lessor and not the State Government.

In State of Meghalaya v. All Dimasa Students Union,129 this Court held that: (i) Chapter V of the Mineral Concession Rules has to be treated to be dealing with minerals owned by private persons; (ii) a mining lease granted according to Chapter V of the Mining Concession Rules 1960 is a mining lease granted by the owner of the minerals and not the State Government; and (iii) no authority can grant a mining lease in respect of minerals which vest with private owners without the authority of such owners.

The right of proprietors to grant leases and receive royalty stems from the proprietary interest in the immovable property including the minerals. The MMDR Act regulates the exercise of the proprietary rights in the minerals in the larger public interest.130 The 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 under Section 9, but royalty is received by the mining lessor, that is the State Government or a private person. 129 [2019] 8 SCR 297 : (2019) 8 SCC 177 [129]-[130] 130 Monnet Ispat & Energy Ltd (supra) [138] Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1638 [2024] 7 S.C.R. iv. Meaning of “royalty”

At the outset we clarify that in this reference, we are dealing with ‘royalty’ in the context of the MMDR Act. 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. In Inderjeet Singh Sial v. Karam Chand Thapar,131 this Court observed that royalty is equivalent to the expression “jura regalia” or “jura regia”. Jura regalia is defined as royal prerogatives or rights.132 For centuries, gold and silver mines (also called as royal metals) in the United Kingdom were treated as belonging to the Crown. Royal metals could be mined only after payments in the form of royalties were made to the Crown. The use of the word “royalty” underwent change in the United Kingdom with the decentralization of the sovereignty which was absorbed by the landowners.133 Land ownership was concentrated in the hands of landowners, who conceded the right to work mines to lessees in return for consideration which took the form of dead-rent and royalties.134

This Court has had occasion to analyze the meaning of the expression “royalty” in its decisions. In H R S Murthy v. Collector of Chittoor,135 a Constitution Bench observed that royalty connotes a payment made for materials or minerals won from land. In D K Trivedi v. State of Gujarat,136 the distinction between “royalty” and “dead rent” was explained thus: “39. In a mining lease the consideration usually moving from the lessee to the lessor is the rent for the area leased (often called surface rent), dead rent and royalty. Since the mining lease confers upon the lessee the right not merely to enjoy the property as under an ordinary lease but also to extract minerals from the land and to appropriate them for his own use or benefit, in addition to the usual rent for the area 131 [1995] Supp. 4 SCR 53 : (1995) 6 SCC 166. 132 Ramanatha Aiyar, Advanced Law Lexicon (Volume 3) 2789. 133 J U Nef, The Rise of the British Coal Industry (Routledge, 1966) 134 Royal Commission on Mining Royalties, Final Report of the Royal Commission Appointed to Inquire into the Subject of Mining Royalties (1893) 4. 135 [1964] 6 SCR 666 [6] 136 [1986] 1 SCR 479 : (1986) Supp. SCC 20 Digital Supreme Court Reports [2024] 7 S.C.R. 1639 demised, the lessee is required to pay a certain amount in respect of the minerals extracted proportionate to the quantity so extracted. Such payment is called “royalty”. It may, however, be that the mine is not worked properly or as not to yield enough return to the lessor in the shape of royalty. In order to ensure for the lessor a regular income, whether the mine is worked or not, a fixed amount is provided to be paid to his by the lessee. This is called “dead rent”. “Dead rent” is calculated on the basis of the area leased while royalty is calculated on the quantity of minerals extracted or removed. Thus, while dead rent is a fixed return to the lessor, royalty is a return which varies with the quantity of minerals extracted or removed. […]” (emphasis added)

Minerals are exhaustible and finite resources. Each quantity of mineral removed leads to the depletion of the mineral stock of the mine.137 Under a mining lease, a lessee acquires a right or interest in minerals. This right or interest allows the lessee to extract minerals and consume them. 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.138

In Bherulal v. State of Rajasthan,139 a Division Bench of the Rajasthan High Court explained the concept of royalty in the following terms: “8… In Wharton’s Law Lexicon, ‘royalty’ is defined as

payment to a patentee by agreement on every article made according to his patent, or to an author by a publisher on every copy of his book sold; or to the owner of minerals for the right of working the same on every on or other weight raised.

The present case is of the third kind, namely payment to the owner of minerals for the right of working the same. This payment is based on the 137 W R Sorley, ‘Mining Royalties and their Effect on the Iron and Coal Trades’ (1889) 52(1) Journal of Royal Statistical Society 60, 66 138 Ibid. 139 1956 SCC OnLine Raj 9 [8] Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1640 [2024] 7 S.C.R. produce, and the rate is fixed as so much per ton or other weight. It is clear that royalty has nothing to do with where the purchaser is taking the mineral, or to whom he is going to sell it, whether at the place where the mine is situated or at some place hundreds of miles away. […] It is clear, therefore, that royalty is a charge by the owner of minerals from those to whom he gives the concession to remove them, and the charge is on production, the rate being fixed according to weight.” (emphasis added)

The essential characteristics of royalty are that (i) it is a consideration or payment made to the proprietor of minerals, either the government or a private person; (ii) it flows from a statutory agreement (a mining lease) between the lessor and the lessee; (iii) it represents a return for the grant of a privilege (to the lessee) of removing or consuming the minerals; and (iv) it is generally determined on the basis of the quantity of the minerals removed.

In comparison, dead rent acts as a deterrent against a leaseholder cornering a mining lease and keeping the mineral resources idle.140 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. The 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. Therefore, dead rent is not in addition to royalty but an alternative.

If royalty is a consideration paid by the lessee to the lessor as part of the terms of a mining lease, can this payment be considered in the nature of tax? This is the next issue for our consideration. v. Characteristics of Tax

Taxation is a mode of raising revenue to fund public expenditure. The power of taxation is an essential and inherent attribute of sovereignty.141 In the decision of the US Supreme Court in McCulloch 140 Government of India, Ministry of Mines, ‘Mineral Royalties’ 27 (January 2011) 141 Thomas Cooley, The Law of Taxation (4th edn, 1924) 149 Digital Supreme Court Reports [2024] 7 S.C.R. 1641 v. Maryland,142 Chief Justice John Marshall described the sovereign right of taxation thus:

It is admitted that the power of taxing the people and their property is essential to the very existence of Government, and may be legitimately exercised on the objects to which it is applicable, to the utmost extent to which the Government may choose to carry it. The only security against the abuse of this power is found in the structure of the Government itself. In imposing a tax, the legislature acts upon its constituents. This is, in general, a sufficient security against erroneous and oppressive taxation.

Taxes are monetary burdens or charges imposed by legislative power upon persons, or property to raise revenues.143 The government needs requisite funds to discharge its primary governmental functions.144 No responsible government can function and achieve its welfare objectives without levying and collecting taxes.145 The 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.146 Although the power of taxation is pervasive and an incidence of sovereignty, it is subject to well-defined constitutional limitations.

In Matthews v. Chicory Marketing Board,147 Latham CJ defined “tax” as a “compulsory exaction of money by a public authority for public purposes, enforceable by law, and … not a payment for services rendered.” In Commissioner, Hindu Religious Endowment, Madras v. Sri Lakshmindra Thirta Swamiar of Sri Shirur Mutt,148 this Court relied on the above elucidation to enumerate the following essential characteristics of a tax:

44. […] It is said that the essence of taxation is compulsion, that is to say, it is imposed under statutory power without 142 17 U.S. 316 (1819) 143 Amrit Banaspati Co. Ltd. v. State of Punjab (1992) 2 SCC 411 [10] 144 Dena Bank v. Bhikabhai Prabhudas Parekh & Co. (2000) 5 SCC 694 [8] 145 Jindal Stainless Steel [112.2] 146 Rai Ramkrishna v. State of Bihar [1964] 1 SCR 897 [12] 147 60 CLR 263 148 [1954] 1 SCR 1005 : (1954) 1 SCC 412 Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1642 [2024] 7 S.C.R. the taxpayer’s consent and the payment is enforced by law. The second characteristic of tax is that it is an imposition made for public purpose without reference to any special benefit to be conferred on the payer of the tax. This is expressed by saying that the levy of tax is for the purposes of general revenue, which when collected forms part of the public revenues of the State. As the object of a tax is not to confer any special benefit upon any particular individual, there is, as it is said, no element of quid pro quo between the taxpayer and the public authority. Another feature of taxation is that as it is a part of the common burden, the quantum of imposition upon the taxpayer depends generally upon his capacity to pay.

A tax has the following essential characteristics: (i) it is a compulsory exaction of money by a public authority; (ii) it is imposed under statutory power without the consent of the tax payer; (iii) the demand is enforceable by law; (iv) 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 (v) it is part of the common burden.149

Article 366(28) defines “taxation” to include “the imposition of any tax or impost, whether general or local or special.” This Court has interpreted the word “tax” in its widest amplitude to include all money raised by taxation.150 In Jindal Stainless Steel (supra), one of us (Justice D Y Chandrachud) held that the expression “any tax” means “any levy which the State is constitutionally competent to legislate.” 151

One of the issues debated in the reference pertains to the meaning of the word “impost.” Thomas Cooley in the Law of Taxation defines “imposts” to mean “any tax, tribute, or duty.” 152 This Court has generally construed the expression “imposts” to include taxes153 and fees154 149 See Mahant Sri Jagannath Ramanuj Das v. State of Orissa (1954) 1 SCC 455 [11] 150 D G Gose and Co. (Agents) (P) Ltd. v. State of Kerala (1980) 2 SCC 410 [5] 151 Jindal Stainless Steel (supra) [730.1] 152 Thomas Cooley, The Law of Taxation (4th edn, 1924) 74 153 Sea Customs Act, S 20(2), In re, 1963 SCC OnLine SC 40 [37] (Held that customs duty or excise duty was an impost within the meaning of Article 366(28)); 154 CCE v. Chhata Sugar Co. Ltd. (2004) 3 SCC 466 [36] (It was observed that an impost can be either a tax or fee.) Digital Supreme Court Reports [2024] 7 S.C.R. 1643 realizable by the authority of law.155 In CIT v.

22. Under Article 366(28) “Taxation” has been defined to include the imposition of any tax or impost whether general or local or special and tax shall be construed accordingly. “Impost” means compulsory levy. The well- known and well-settled characteristic of “tax” in its wider sense includes all imposts. Imposts in the context have following characteristics: 155 Indian Banks’ Association v. Devkala Consultancy Service (2004) 11 SCC 1 [18] 156 [2009] 8 SCR 983 : (2009) 10 SCC 755 [22] 157 Reiterated in Jindal Stainless Steel (supra) [20], [395] Mineral Area Development Authority & Anr. v. M/s Steel Authority of India & Anr. Etc. 1644 [2024] 7 S.C.R. (i) The power to tax is an incident of sovereignty. (ii) “Law” in the context of Article 265 means an Act of legislature and cannot comprise an executive order or rule without express statutory authority. (iii) The term “tax” under Article 265 read with Article 366(28) includes imposts of every kind viz. duty, cess or fees. (iv) As an incident of sovereignty and in the nature of compulsory exaction, a liability founded on principle of contract cannot be a “tax” in its technical sense as an impost, general, local or special.”

The Court held in McDowell (supra) that bottling fees are a payment made by the assessee to the State Government “as consideration for acquiring the exclusive privilege” 158 The payment was held to be neither a fee nor a tax but consideration for the grant of approval by the government to contract on the exclusive right to deal in bottling liquor. Therefore, bottling fees were held not to fall within the purview of Section 43-B(a).

The expression “tax” under Article 265 includes every kind of impost in the form of a compulsory exaction. An impost is a compulsory exaction. The power to levy an impost is an incident of sovereignty. A liability arising out of contract cannot be termed as an impost or tax. A 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” under Article 366(28).

The 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. Well-known examples involving the parting of the exclusive privilege by the government include telecommunication activities and the manufacture and sale of intoxicants. The price paid for parting with an exclusive privilege vesting in government is neither a tax nor a fee.159 In State of Punjab v. 158 McDowell and Co. Ltd. (supra) [17]