Today, the Supreme Court reserved judgement on the nature of royalty paid by mine leaseholders after eight days of hearings.The Bench heard rejoinder arguments from appellants who strongly contended that royalty cannot be in the nature of tax. 

Senior Advocate Rakesh Dwivedi opened the arguments for the day. For the majority of the first half, he responded to arguments made by the respondents who for five days have claimed that “royalty is akin to tax.”


On 28 December 1957, the Union Government enacted the Mines and Minerals (Development and Regulation) Act, 1957 (‘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 to the Union government for 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’), imposed a cess on the land revenue paid to the Union Government.

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. The Madras High Court upheld the law.

India Cements appealed against the decision in the Supreme Court. 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 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. 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.

Meanwhile, 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. 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 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.

This is the second-oldest pending 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.

Dwivedi: Royalty is a contractual obligation, not tax

Dwivedi claimed that mineral land and minerals are intrinsically linked, as minerals grow within the Earth’s “womb.” He argued against the notion of separating “mineral rights” from the land, highlighting that the taxation of these rights hinges upon the value of the minerals extracted. 

The respondents had argued that land allotment constitutes the entirety of “mineral rights.” They had also claimed that mineral extraction operates independently from “mineral rights,” which are exempted from being taxed by state governments under Entry 50 of the State List. In response, Dwivedi pointed to “Form K” of the Mineral Concession Rules, 1960—a model lease deed specifying royalty obligations under the MMDR Act. He contended that the lease deed encompasses both the grant of mineral land and mineral rights, rejecting the notion of their separateness.

Dwiviedi asserted that the respondents were considering these compulsory levies as a form of tax or compulsory impost. He emphasised that despite the statutory nature of “Form K,” its contractual character is akin to any other scenario where there is an “offer” and an “acceptance.”

 Further, he pointed out that “Form I” discusses the application of a mining lease. Only after such an application, a mining lease deed is prepared. Reiterating his older submissions, Dwivedi contended that the innate characteristics of a royalty cannot be reduced by equating it to tax. 

Dwivedi: Limitation must be explicitly stated

Dwivedi highlighted that the state’s authority to levy taxes under Entry 50 is subject to parliamentary legislation aimed at “mineral development.” While he acknowledged Parliament’s authority to set limitations, he contested the argument that the MMDR Act nullified the state’s taxing jurisdiction. He pointed out that Entry 54 of the Union List, which deals with Parliament’s power to make laws on mines and minerals, can restrict the state from regulating the same under Entry 23 of the State List. However, the same relationship does not exist with Entry 50 (states taxing power). Parliament’s dominion, he said, does not subsume the taxing power of the state. Further, the MMDR Act never expressly states that the state cannot tax on mineral rights. 

He relied on Jindal Stainless Steel v State of Haryana (2017), where a nine-judge bench held that any constitutional constraints must be explicitly stated. Earlier, respondents had argued that the state’s taxing power was nullified after inferring from the “architecture” of the MMDR Act. He asserted that only express provisions could curtail state taxing authority, highlighting the absence of such provisions in the Act. Moreover, he advocated for a “limit on limitations,” suggesting that Parliament, being well-informed on policy matters, had not introduced any explicit provisions restricting state taxation. Dwivedi pointed out that even the Constituent Assembly deliberately preserved state governments’ taxing powers under the State List, despite considerations to shift all mines and minerals to the Union List.

Dwivedi: “What disaster is happening?”

According to Dwivedi, a taxation law on mines and minerals, which was upheld in Kesoram Industries v West Bengal (2004), is still active in the state for over two decades. He argued that the Union government has not provided evidence demonstrating the impact of this taxing law on mineral extraction and revenue. Dwivedi criticised the Union for relying on outdated instances where a tax rate of 300 percent was imposed on mines and minerals, without presenting current tax rates for comparison. Chief Justice D.Y. Chandrachud supported this argument by highlighting the historical context of income tax rates, which were once as high as “97 percent” but have since decreased. Dwivedi contended that the Union should present concrete evidence to the Bench regarding the adverse effects of the tax in West Bengal, rather than relying on outdated data.

In the second half of the hearing, the Bench heard arguments from Senior Advocates Hansaria and S. Niranjan Reddy argued. Advocate Sanskriti Pathak, assisting Dwivedi, also made short submissions. The Supreme Court reserved judgement in the case after eight days of arguments.


(This report will be updated)