On 25 July, 2024 by an 8:1 majority, a nine-judge Constitution Bench of the Supreme Court in the case of Mineral Area Development Authority and Anr. v. M/S Steel Authority of India & Anr. Ltd.; 2024 INSC 554 (The case or Judgment, hereinafter) held that States possess the power to levy tax on mines and minerals. The decision thereafter opened avenues for State legislatures to collect royalty, along with tax on major minerals, and on mineral-bearing land based on the value of the minerals extracted therefrom. The soul of the decision was fiscal federalism, an important facet of federalism itself. In the judgment, the majority opinion authored by Dr D.Y. Chandrachud, C.J., delineates the relationship between the State and the Centre with respect to their finances and resource allocation. Recently, union government has come up with a bill by the name THE MINES AND MINERALS (DEVELOPMENT AND REGULATION) AMENDMENT BILL, 2026 (MMDR bill hereinafter) to Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act).

Fiscal Federalism

The concept of "fiscal federalism" has, of late, gained currency in constitutional jurisprudence. Dr D.Y. Chandrachud, C.J., in Union of India v. Mohit Minerals Pvt. Ltd., observed that one of the important features of Indian federalism is 'fiscal federalism'. In the Mineral Rights case, the majority judgment observed as follows:

Governments must possess adequate fiscal resources to effectively discharge their constitutional responsibilities. The underlying rationale for such distribution of legislative entries is to vest the legislatures with sufficient fiscal powers to raise revenue commensurate with growing public expenditure, thereby enabling them to contain fiscal deficits. Any erosion of the taxing powers conferred upon State legislatures would necessarily impair their capacity to mobilise revenue, consequently undermining their ability to deliver welfare schemes and essential services to the citizenry. The doctrine of fiscal federalism mandates that the States' power to levy taxes, within the legislative domain allocated to them and subject to the limitations prescribed under the Constitution, must remain insulated from unconstitutional encroachment by Parliament. In this regard, the constitutional allocation of powers to the States is fundamentally in furtherance of, and gives effect to, the principles underlying fiscal federalism.

Issues in the Case

The two issues arising for consideration were: first, whether State Governments could tax mines and minerals under Entry 50 of the State List; and second, whether State Governments could levy tax on mineral land based on the value of minerals under Entry 49 of the State List. On the first issue, it was held that under Entry 50, the State Legislature can indeed collect tax on “mineral rights,” though this power remains subject to "any limitation" imposed by Parliament through law relating to “mineral development,” the MMDR Act being one such law.

On the second issue, it was held that Entry 49 includes tax on lands and buildings, that the word "land" therein includes "land of every description," and that Entry 49 contemplates taxation of land "as a unit, irrespective of the use to which it is put," thereby permitting State Legislatures to levy tax on mineral-bearing land even though Entry 49 does not expressly mention it. The Court observed, "The Constitution envisages the imposition of limitations by Parliament on the legislative field of the state of taxes on mineral rights, and not taxes on lands."

The object and reason of the MMDR Bill

The Statement of Objects and Reasons underlying the MMDR Bill proceeds on the premise that minerals, being finite and unevenly distributed across the States, constitute a strategic national resource whose regulation must be guided by uniform, long-term goals of sustainable and equitable development rather than fragmented, region-specific fiscal impositions. The Bill notes that the unregulated and disparate imposition of taxes, cesses and other levies on mineral rights and mineral-bearing lands by State Governments—often multiple, non-uniform, unpredictable and at times retrospective—has resulted in an excessive and inconsistent fiscal burden on the mining sector. To remedy this, the Bill expands Union control to mineral-bearing lands and introduces a new Section 9D in the MMDR Act, 1957, barring State Governments from imposing any tax, cess or levy on mineral rights or mineral-bearing lands except within conditions and restrictions prescribed by the Central Government, while protecting past collections from refund and invalidating uncollected dues.

Implications of the Decision

The Bill may hold tremendous possibilities, as outlined in its Statement of Objects and Reasons, but what it impacts most severely is the federal fabric of the country—and, in particular, an important aspect of it, namely, the fiscal federal structure. It weakens the States under a constitutional scheme in which powers already tilt heavily towards the Centre. Through this Bill, the Centre is not merely depriving the States of their power to tax mineral rights—a power already made subject to limitations by Parliament under Entry 54 of the Union List—but the Bill also carries the potential to thwart the growth of States, owing to an unfair distribution of resources among States governed by parties different from the ruling party at the Centre, as well as the excessive delegation of powers to the executive to regulate under the amendment.

Constitutional Analysis

The author finds no merit in the argument that this amounts to a case of parliamentary overruling of the judgment, as few of the opposition leaders are claiming, since, according to the majority opinion, the scope of the expression "any limitations" under Entry 50 of List II was held to be wide enough to include the imposition of restrictions, conditions and principles, as well as an outright prohibition; and what Parliament has done through this Bill is merely exercise its power under Entry 54 of List I to make a law regulating the development of mines and minerals. Section 9D bars the States from collecting tax, cess or any other levy on mineral rights or mineral-bearing lands, which is sound in law given the Court's holding that a prohibition may validly be imposed by Parliament through law. Parliament itself is barred from taxing mineral rights under Entry 54—which, in any event, it is not doing.

However, Parliament falters where it denies the States their taxing rights over mineral-bearing lands, which runs entirely contrary to the constitutional scheme and the Supreme Court's decision. Under the Constitution of India, and as also analysed in the majority opinion, Entry 49 does not restrict States from imposing taxes on mineral-bearing land, nor is it limited by any parliamentary legislation under Entry 54. Such a limitation cannot even be read in by necessary implication, and express legislation to that effect is wholly impermissible. It is a power without any limitation, the measure of such tax being either the mineral value or the royalty, and the States cannot be deprived of this power. Since mineral lands squarely fall within Entry 49, which admits of no limitation whatsoever, Parliament's act of barring States from taxing mineral lands under Section 9D(1)(b) is beyond its legislative competence.

The phrase "except in accordance with such conditions or restrictions as may be prescribed by the Central Government" under Section 9D(1) also suffers from the vice of excessive delegation, as it vests the executive with broad powers without any clear legislative standards on which such conditions and restrictions are to be based. First, there is a denial of the right to tax; second, such denial is, as explained above, valid in one case and invalid in another, but even where it is valid, the core conditions and restrictions by which the federal structure stands curtailed must be laid down by the legislature itself, this being its essential function—one that cannot be delegated, as held in In Re Delhi Laws Act. Such conditions, if left to the executive, may well be arbitrary and carry the potential for misuse and an unfair distribution of resources among the States. It would make the provision ultravires the Constitution.

Even after enunciating such grandiose principles, the Court went on to grant the Parliament wide power to prohibit the States altogether from levying tax on mineral rights, holding that this falls within the ambit of the limitations provided under Entry 54 of List I. Second, the Centre is encroaching upon the States' power to tax mineral lands. The Bill, though not strictly a case of parliamentary overruling, nonetheless suffers from major lacunae when viewed against the constitutional scheme and the federal structure. As far as mineral lands are concerned, prohibiting states from taxing the same would be unconstitutional as the Parliament is incompetent to make such a law according to Entry 49 List 2.

Bill is not an instance of regulation for the development of mines and minerals, the authority for which vests with the Centre under Entry 54, List I, it looks more like a measure to denude states of their rights. Moreover, the conditions and restrictions must be laid down by the legislature and not the executive, as leaving them to the executive risks an arbitrary distribution of resources based on ill-conceived restrictions and conditions. If the parts stated above are severed, the subsequent development in this matter remains interesting.

Author is an Advocate practicing at Patna High Court. Views are personal.