On Thursday, the Supreme Court ruled that the royalty mining operators pay to the Central government is not considered a tax. The decision came from a nine-judge bench, with eight judges agreeing and one dissenting. The court upheld the states’ power to tax mineral-bearing lands but clarified that royalty and tax are different.
Chief Justice Chandrachud explained that royalty comes from mining leases and is usually based on the amount of minerals removed. It’s determined by the agreement between the lessor and lessee, and the payment is for the exclusive use of minerals, not for public purposes. Therefore, royalty payments to the government cannot be considered a tax.
The CJI stated, “Royalty is determined by the lease agreement and is not enforced like a tax. It is a payment for the use of minerals.”
Justice BV Nagarathna disagreed, saying that royalty should be seen as a tax, supporting a previous judgment from the India Cements case.
The case was brought before the nine-judge bench in March 2011 due to conflicting rulings. In 1989, the India Cements case ruled that royalty is a tax. However, in 2004, the Kesoram Industries case clarified that the previous ruling had mistakenly stated that “royalty is a tax” when it meant “cess on royalty is a tax.”
The Supreme Court’s latest decision clarifies that royalty payments by mining operators are not taxes, resolving the long-standing conflict between the two previous rulings.
