Can Royalty Collected On Mining Leases Be Considered As Tax? Supreme Court 9-Judge Bench Starts Hearing [DAY1]

The Supreme Court 9-judge Constitution Bench today (February 27) commenced its hearing on the multifaceted taxation matter of mineral-bearing lands. The key reference question involved in the present matter is to examine the nature and scope of royalty as prescribed under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and whether it could be termed as tax. Marking its first day of hearing, the Court dwelled into the important formulations to be considered in the due course of the hearing and the crucial interpretation of constitutional entries dealing with powers to make tax laws between the centre and the state.The bench headed by CJI DY Chandrachud comprises Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and AG Masih. Among the batch are petitions challenging the Bihar Coal Mining Area Development Authority (Amendment) Act, 1992 and the rules framed thereunder, which imposed additional cess and taxes on land revenue due from mineral-bearing lands. The matter was referred to 9 judge bench in 2011. A three-judge bench headed by Justice SH Kapadia had framed eleven questions to be referred to the nine-judge bench. These include important tax law questions such as whether 'royalty' can be considered as being like tax and can the State Legislature while levying a tax on land adopt a measure of tax based on the value of the produce of land. The three-judge bench clarified in this case that the reason why it was not referred to a five-judge bench and directly referred to a nine-judge bench because prima facie, there appeared to be some conflict in the decisions of State of West Bengal v. Kesoram Industries Ltd. and Ors which was delivered by a bench of five-Judges and India Cement Ltd. and Ors. v. State of Tamil Nadu and Ors. which were delivered by seven-judge benches.Senior Advocate Mr Rakesh Dwivedi, appearing for the state of Jharkhand, formulated five fundamental questions before the bench. These included inquiries into the true nature of royalty determined under sections 9 and 15(1) of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), and whether royalty can be classified as a form of tax. The scope of constitutional entries, such as Entry 50 List II and Entry 54 List I, was also scrutinized, with specific emphasis on potential limitations imposed by Parliament. Dwivedi delved into whether the interplay of these entries results in a departure from the established legislative powers distribution.Moreover, the senior advocate raised questions regarding Entry 49 List II, exploring its implications on land value-based measures and the distinct treatment of mining lands under Entry 50 List II in conjunction with Entry 54 List I. Dwivedi's comprehensive argument also touched upon the intricate relationship between Entry 50 List II and Entry 49 List II. The questions raised before the bench were : 1. What is the true nature of royalty determined under s. 9 r/w s.15(1) of the MMDR Act of 1957 and whether a royalty is in the nature of tax?2. What is the scope of entry 50 List II of the 7th Schedule of the Constitution of India and what are the limitations imposable by Parliament in the exercise of its power under entry 54 List I? Does s.9 or any other provision of MMDR Act contain any limitation with respect to the field in entry 50 List II ?3. Whether the expression - 'subject to any limitations imposed by Parliament by Law relating to Mineral development' in Entry 50 List II pro-tanto subjects the entry to Entry 54 List I which is a non-taxing general entry and consequently there is any departure from the general scheme of distribution of legislative power as enunciated in NPV Sundaram's Case 1958 SCR 1422 ?4. What is the scope of Entry 49 List II and whether it envisage facts which involve the measure based on the value of the produce on the land, would the constitutional position be any different qua a mining land on account of Entry 50 List II r/w Entry 54 List I?5. Whether Entry 50 List II is a specific Entry in relation to Entry 49 List II and would consequently abstract mining land from the Scope of Entry 49 List II?On The Confusing Paragraph 34 of Kesoram Industries - Question of Royalty As Tax Never Raised Highlighted Mr Dwivedi During the hearing, Mr Dwivedi pointed out a seemingly contradictory statement in paragraph 34 of the judgment in the case of Kesoram Industries. The first sentence of the paragraph states that the court is of the opinion that royalty is a tax, while the last sentence asserts that royalty is not a tax on land but a payment for the user of land.34. In the aforesaid view of the matter, we are of the opinion that royalty is a tax, and as such a cess on royalty being a tax on royalty, is beyond the competence of the State legislature because Section 9 of the Central Act covers the field and the State legislature is denuded of its competence under Entry 23 of List...

Can Royalty Collected On Mining Leases Be Considered As Tax? Supreme Court 9-Judge Bench Starts Hearing [DAY1]

Anmol Kaur Bawa

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