Supreme Court Upholds State Authority To Tax Mineral-Rich Land, CJI Chandrachud Leads 8:1 Majority Verdict

A nine-judge Constitution Bench of the Supreme Court has delivered a significant verdict affirming the power of states to levy taxes on mineral-rich land. By a majority of 8:1, the Court upheld this authority, with Chief Justice DY Chandrachud emphasizing that unless Parliament imposes limits, the states retain full rights to tax mineral rights. Justice BV Nagarathna dissented from the majority opinion. The ruling, written by CJI Chandrachud and concurred by Justices Hrishikesh Roy, AS Oka, JB Pardiwala, Manoj Mishra, Ujjwal Bhuyan, SC Sharma, and AG Masih, clarifies that there is no royalty tax on extracted minerals.

The Bench will reconsider on July 31 whether this decision will have retrospective effect. Retrospective implementation could result in substantial tax arrears for the states. While the states favor retrospective application, the central government prefers prospective implementation. This case, pending for the last 25 years, is a significant relief for mineral-rich states like Jharkhand, Odisha, Andhra Pradesh, Assam, Chhattisgarh, Madhya Pradesh, and states in the North East. The Supreme Court had reserved its decision on March 14, after hearing 85 petitions on the states’ right to impose taxes. The case was referred to a nine-judge bench in 2011 due to contradictions between earlier rulings by benches of five and seven judges.

During the case hearing, the Central Government opposed the imposition of taxes exceeding royalties on minerals by state governments, arguing in an affidavit that such taxes would increase inflation and hinder foreign direct investment (FDI) in the mining sector. The government claimed that higher taxes would make Indian minerals more expensive, impacting key sectors like electricity, steel, cement, and aluminum, which rely on mineral-based raw materials. This, they argued, would lead to nationwide inflation.

Notably, 78% of India’s coal resources are in Odisha, Jharkhand, Chhattisgarh, and West Bengal, with 68% of the country’s 55% commercial energy production coal being used for power generation. The affidavit stressed that competitive pricing of mineral-based raw materials is essential for equitable national development. It argued that a non-harmonious fiscal system would force less mineral-rich states to purchase raw materials at higher prices from mineral-rich states. The central government advocated for a uniform royalty levy to level the playing field, promoting domestic industry equitably across the country. Royalty rates, set considering international mineral prices, aim to keep costs and the prices of finished products competitive internationally, boosting exports and reducing the trade deficit.