Explained: Will the Supreme Court’s decision on minerals royalty further worsen centre-state relations?

New Delhi: A 9-judge bench of the Supreme Court on Thursday gave a historic verdict on the royalty of minerals by a majority of 8:1. It said that the states have the right to impose tax on minerals and the Centre’s Mines and Minerals (Development and Regulation) Act, 1957 does not limit this right of the states. The bench also said that royalty is not a tax. Chief Justice DY Chandrachud wrote this verdict on behalf of himself and the other 7 judges. At the same time, Justice B Nagarathna gave a separate verdict.
The Supreme Court overturned its 1989 decision and said that the decision was wrong. This decision, which came after 25 years, is being considered a big victory for the states. Earlier, after the presentation of the budget, the CMs of Karnataka, Tamil Nadu, Telangana, Himachal Pradesh and Punjab will not attend the NITI Aayog meeting on July 27, alleging discrimination against the states. The India Block has decided not to attend the NITI Aayog meeting. Apart from this, the West Bengal government is in the Supreme Court regarding the CBI investigation without consent. In such a situation, it is believed that the conflict between the Union and the states may increase further.

What did the Supreme Court say in its decision

The Supreme Court said that the states have the capacity and power to levy tax on land containing minerals. This will greatly benefit Odisha, Jharkhand, West Bengal, Chhattisgarh, Madhya Pradesh and Rajasthan. Chief Justice Chandrachud said that royalty comes from mining leases. Royalty is decided on the basis of the amount of minerals extracted in mining. The obligation of royalty depends on the terms of the contract between the lessor and the lessee. Whatever payment is made for this is not for public purposes, but for special use charges. In such a situation, the payment made to the government for the contract cannot be considered as a tax. The owner takes royalty for separating minerals. The royalty is seized by the lease deed and tax is imposed. We believe that it is wrong to call royalty a tax in the India Cements decision.

SC On Mineral Tax: There is no royalty tax on minerals, a big decision of the Supreme Court, a big blow to the Center

What was that section 9, on which the Supreme Court gave a big decision

There were two important questions before the Supreme Court. Can ‘royalty’ be treated as a tax? Can the state legislature adopt a taxation measure based on the value of the produce of the land while imposing tax on land? Actually, the Supreme Court had come up with a case to examine the nature and scope of royalty mentioned in Section 9 of the MMRDA Act, 1957.
According to Supreme Court advocate Shivaji Shukla, Section 9 states that the person taking the mining lease is required to pay royalty on minerals. This subject is in the second schedule. It was stated in it that the central government has the right to revise the royalty rates through notification. However, such a change cannot be made more than once every three years.

The court had said- the states also have the right to impose tax

In the last hearing on March 14, the Supreme Court had said that the Constitution does not only have the right to levy tax on mineral rights but also the states. In such a situation, their right cannot be suppressed.

Center’s argument- the right to royalty should be with the center

Attorney General R Venkataramani, appearing for the Centre, had argued that the Centre has more powers to levy taxes on mines and minerals. Solicitor General Tushar Mehta had said that the Mines and Minerals (Development and Regulation) Act (MMRDA Act) puts a limit on the legislative power of the states to levy taxes on minerals and only the Central Government has the right to fix royalty.

Supreme Court’s big decision on mining royalty, know which state has the highest dues

Justice Nagarathna said… then the federal system will collapse

Apart from Chief Justice DY Chandrachud, this bench of 9 judges included Justice Hrishikesh Roy, Justice Abhay S Oka, Justice BV Nagarathna, Justice JB Pardiwala, Justice Manoj Mishra, Justice Ujjal Bhuiyan, Justice Satish Chandra Sharma and Justice Augustine George. Justice Nagarathna believed that the nature of royalty is similar to tax. In such a situation, in the case of tax on royalty of minerals under the MMDR Act, the states do not have the power to impose tax on minerals. By giving the right to impose tax on minerals to the states, there will be no uniformity on national resources. This will increase unfair competition among the states. This will collapse the federal system.

Centre’s argument is that Indian minerals will become expensive, foreign money will not come in mining

The central government had filed an affidavit in the Supreme Court opposing the imposition of higher taxes than royalty on minerals by the state governments. The Center had asked the court not to allow the states to levy higher taxes than royalty. The central government had told the Supreme Court that the tax imposed by mineral-rich states would increase inflation. FDI in the mining sector would be hindered. Indian minerals would become expensive. The international market would become less competitive due to the increase in trade deficit and uneven economic development between states.

Mamta Banerjee government is also in Supreme Court against CBI investigation

Earlier on July 10, the Supreme Court had agreed to hear the petition of the Mamta Banerjee government against the CBI investigation in West Bengal. The next hearing in this case is to be held on August 13. The Supreme Court said that the West Bengal government has raised a legal aspect which needs to be considered. When the state government withdrew the permission given for CBI investigation, then why is the agency registering cases in the cases there. In fact, the Mamta Banerjee government has filed this petition in the Supreme Court citing Article 131 of the Constitution.

So what is the Centre-State relationship, on which controversy has been arising time and again?

Supreme Court advocate Shivaji Shukla says that the Indian Constitution calls India a ‘union of states’ and not a federal state. The Indian Constitution clearly divides legislative, administrative and financial powers between the Centre and the states. The subjects of legislative powers are divided into three lists. These are the Union List, State List and Concurrent List. The original Union List has 97 subjects, which include defence, foreign relations, currency, communication and financial matters. The State List has 66 subjects, which include subjects of local importance like law and order, public health, administration. The Concurrent List includes more than 40 subjects on which both the Centre and the State can make laws. However, no state government can make laws in opposition or contrary to the laws and policies made by the Centre.

Ambedkar was also in favour of strengthening the centre

According to Advocate Shivaji Shukla, Baba Saheb Bhimrao Ambedkar, the architect of the Constitution, supported a strong government at the Centre. he/she feared that casteism is more powerful at the local and provincial levels. In such a situation, the government cannot protect the interests of the lower castes under the pressure of the upper castes. Since the national government is less affected by these pressures, it will ensure the protection of the lower castes. he/she also feared that the minorities, which are the most vulnerable group in the nation, may turn into political minorities. Therefore, the democratic rule of ‘one man one vote’ is not enough and the minority should be guaranteed a share in power. he/she was against the ‘Majoritarianism Syndrome’ and ensured many safeguards for the minorities in the Constitution.

Minerals are a subject of the state list, but there was a problem regarding royalty

According to the Constitution, minerals and their regulation are a subject of the State List in the Seventh Schedule of the Constitution. At the same time, minerals related to nuclear energy come under the subjects included in the Central List. However, the matter of royalty is different. Here the issue of royalty of minerals was related to the Center. There have been repeated disputes regarding this.

Articles 245 to 255 deal with legislative matters

The Centre has been empowered in Articles 256 and 255 of the Constitution. At the same time, Articles 245 to 255 of Part XI of the Constitution describe the legislative relations between the Centre and the states. Articles 256 to 263 deal with the administrative relations between the Centre and the states. Apart from this, Articles 268 to 293 included in Part XII of the Constitution deal with Centre-State financial relations.