In a landmark decision, the Supreme Court of India on Wednesday affirmed the authority of states to impose taxes on mineral-bearing lands. The 8:1 verdict was delivered by a nine-judge Constitution bench led by Chief Justice of India DY Chandrachud.

The court examined two critical questions: whether royalties on mining leases should be considered as taxes and whether states retain the power to levy royalty or tax on mineral rights following the enactment of the Mines and Minerals (Development and Regulation) Act (MMDR Act) of 1957.

Chief Justice Chandrachud clarified that royalties are not in the nature of taxes but are contractual considerations paid by the lessee under mining leases. “Both royalty and debt rent do not fulfill the characteristics of a tax. The judgment in India Cements holding royalty to be a tax is overruled,” he stated while delivering the judgment.

However, Justice BV Nagarathna dissented, arguing that royalty is in the nature of a tax. She asserted that the provisions of the MMDR Act regarding the levy of royalty strip states of their power to impose taxes on minerals. According to her, “land” under Entry 49, List 2 does not include “mineral-bearing lands,” as this would lead to double taxation on mineral rights.

Justice Nagarathna further contended that permitting states to levy taxes on minerals could result in a lack of uniformity concerning a national resource and could lead to unhealthy competition among states, potentially destabilizing the federal system.