Nature of royalty paid by mine leaseholders

Mineral Area Development Authority v Steel Authority of India

The Court will determine whether royalty paid by mine operators to the Union government is a form of tax



Appellant: Mineral Area Development Authority etc. through its Secretary; Secretary of Mineral Development Authority

Lawyers: Senior Advocate Rakesh Dwivedi; Senior Advocate S. Niranjan Reddy; Senior Advocate Vijay Hansaria; Senior Advocate S.R. Singh; Advocate Santosh Krishnan; Advocate Kirti Renu Mishra; Advocate Sansriti Pathak

Respondent: M/s Steel Authority of India; State of Bihar; Industries and Commerce Association through Proprietor; Sitaram Singh Hard Coke Manufacturers; Hindustan Mallcables and Forgins Ltd; Dhanbad Bricks Field Owners Association; Abdul Halim; The Small Scale Bee-hive Hardcoke Producers Association; Coalfield Refractory Manufacturers Association

Lawyers: Attorney General R. Venkataramani; Solicitor General Tushar Mehta; Senior Advocate Harish Salve; Senior Advocate Arvind Datar

Case Details

Case Number: Civil Appeal No. 4056-4064 of 1999

Next Hearing: March 12, 2024

Last Updated: June 20, 2024

Key Issues


 Whether ‘royalty’ determined under the Mines and Minerals (Regulation & Development) Act, 1957 is in the nature of tax?


Can the State Legislature while levying a tax on land under the State List levy tax based on the value of the produce of land?


 Is the state legislature denuded of its powers to tax and regulate mines and minerals due to the provisions of the Mines and Minerals (Development & Regulation) Act, 1957?


What is the true nature of royalty extracted from mines?


Whether the majority decision in State of West Bengal v Kesoram Industries Ltd. (2004) is in conflict with  the law laid down in India Cement Ltd. v State of Tamil Nadu (1990)?


What is the scope of the expression “taxes on mineral rights” under Entry 50 of the State List?


 Entry 50 of the State List states that the State’s taxation power is “subject to any limitation imposed by Parliament….relating to mineral development”. In what ways does this limit the State’s taxation power, and in what ways does it empower the Union’s regulatory power over mines and mineral developments provided under Entry 54 of the Union List? 

Case Description

On 28 December 1957, the Union Government enacted the Mines and Minerals (Development and Regulation) Act (‘the Mines Act’). Under this, the control of mines and minerals was brought under the ambit of the Union. Section 9 of the Act stated that mining lease holders have to pay royalty tor any “mineral removed or consumed” from the leased area.

On 19 July 1963, the Tamil Nadu government granted a mining lease to India Cement Ltd., a public limited company for extracting limestone and kankar. The royalty was fixed under the Mines Act. Meanwhile, under Section 115(1) of the Madras Panchayat Act, 1958 (‘Madras Act’), a state legislation, a local cess at the rate of 45 paise per rupee of land revenue paid to Government was to be levied in each panchayat development block. 

India Cement challenged this provision in the Madras High Court, claiming that the Tamil Nadu government lacked the legislative competence to levy cess on royalty.   A single judge bench held that the cess levied under the Madras Act was a tax on land which the Tamil Nadu government was competent to take under Entry 49 of the State List. A Division Bench reaffirmed the single judge decision stating that the local cess was only a charge on the land itself. 

India Cements appealed against the decision in the Supreme Court. They argued that the levy of cess of royalty was essentially a tax on royalty and beyond Tamil Nadu government’s legislative competence. The Tamil Nadu government argued that the cess was a levy in respect of land and fell under Entry 49, 50 or 45 of the State list. On 25 October 1989, in India Cement Ltd v State of Tamil Nadu, a seven-judge bench of the Supreme Court held that the royalty was indirectly related to the minerals extracted. The decision found  that “royalty is a tax” under the Mines Act. A cess on royalty being a tax on royalty was beyond the State’s legislative competence since the Union’s Mines Act “covers the field.”

On 25 November 1992, in Kesoram Industries Ltd (Textiles Division) v Coal India Ltd, a Division Bench of Calcutta High Court struck down certain levies in the form of cess on coal as unconstitutional due to lack of the state’s legislative competence. There, a West Bengal tax amendment law had brought in a legal regime to levy cesses upon coal mines. Similar cesses were also levied on mining of brick earth and on tea plantation land. The Bench noted that the cess imposed by West Bengal was similar to the one declared unconstitutional in India Cements. 

In February 1995, a three-judge bench of the Supreme Court in State of Madhya Pradesh v Mahalaxmi Fabric Mills Ltd (1995), upheld the constitutionality of Section 9 of the Mines Act. An important contention raised in the case was that the seven-judge bench in India Cements. had mistakenly written “royalty is a tax” while actually meaning that “cess on royalty is a tax.” The Court decided that there had been no such typographic error and that the conclusion “royalty is a tax” logically flowed from the rest of that judgement. 

In May 1999, a writ petition was filed challenging the Bihar Coal Mining Area Development Authority (Amendment) Act, 1992. It imposed additional cess and taxes on land revenue from mineral bearing lands. This would be the genesis of a case called Mineral Area Development Authority v Steel Authority of India, which would eventually lead to the creation of the current nine-judge Constitution Bench. Parallel hearings would start in this case. 

On 1 March 2000, in Ram Dhani Singh v Collector, Sonbhadra a Division Bench of the Allahabad High Court upheld Section 35 of the U.P. Special Area Development Authorities Act, 1986 which levied a cess on minor minerals. 

By the early 2000s, a number of Special Leave Petitions and writ petitions had arisen out of these judgements delivered by the Calcutta and Allahabad High Court. 

On 15 January 2004, a five-judge bench of the Supreme Court, in State of West Bengal v Kesoram Industries Ltd (‘Kesoram Industries’), by 3:2 majority, held that there had been a grave, “inadvertent” clerical error in the text of India Cements. After a relook of  the same issue that Mahalaxmi Fabric Mills had assessed nine years before, the majority judgement held  the Bench had mistakenly written that “royalty is a tax” while meaning that “cess on royalty is a tax.” They noted that India Cement had relied on case laws which had clearly stated that royalty was not a tax. 

The Court recorded that this “typographical error” had thrown jurisprudence in disarray. They clarified that royalty was not a tax since even a private owner of the property, who is not entitled to charge tax, could charge royalty. They reasoned that this royalty was merely an expenditure incurred by the lessee and an income to the lessor. The majority further disagreed with Mahalaxmi Fabric Mills , which had earlier held that there had been no typographical error in India Cements. The Bench upheld the Allahabad High Court’s decision in Ram Dhani Singh which held that state governments had legislative competence.

The dissenting opinion in Kesoram Industries, observed that the grant of mineral rights was controlled by the Union government’s Mines Act. The state governments were “denuded” of imposing any tax on mineral rights. It reasoned that the Parliament had established complete control over tea and coal as they were “subjects of great importance.” It further noted that the “field of taxation on mineral” came under Section 25 of the Mines Act.

All this while, the case in Mineral Development Area Authority pertaining to similar royalty on mining issues in Bihar had snowballed into a cluster of litigations—over 80 matters would be linked to that case. The Supreme Court has finally decided to resolve the longstanding contentions in all these cases through this matter. On 7 April 2004, the Court referred Mineral Development Area Authority, to a three-judge bench given the “far reaching implications” of the constitutionality assessment. 

On 27 March 2006, Justice Ruma Pal recused herself from hearing the matter.

On 30 March 2011, a three-judge Bench consisting of Justices S.H. Kapadia, K.S. Panicker Radhakrishnan and Swatanter Kumar stated that there was a “prima facie” conflict between the decisions in India Cements and Kesoram Industries. They referred the matter to a nine-judge bench. 

On 7 October 2023, the registry informed that four nine-judge bench matters, including Mineral Area Development Authority, were to be listed for directions before Chief Justice  D. Y. Chandrachud

This is the oldest pending nine-judge Constitution Bench decision in the Supreme Court and would have been pending for 9044 days by the first day of hearing on 27 February 2024. The case will be heard by Chief Justice D.Y. Chandrachud, and Justices Hrishikesh Roy, A.S. Oka, B.V. Nagarathna, J.B. Pardiwala, Manoj Misra, Ujjal Bhuyan, S.C. Sharma, and A.G. Masih

On 14 March 2024, the Supreme Court reserved judgement after eight days of hearings.