Mineral-rich states in India will now be able to collect tax on mineral lands, retrospectively from April 1, 2005. The Supreme Court passed this ruling on August 14 following the July 25 ruling where a nine-judge constitution bench of the Supreme Court decided that states in India have the power to impose tax on mining activities. This issue is being heard in the court since 1999.

The bench led by chief justice D.Y. Chandrachud said the power of state legislatures to impose tax on mining lands and mines is not limited by the Mines and Minerals (Development and Regulation) Act, 1957.

After this decision, mineral-rich states like Odisha and Jharkhand demanded the payment of tax retrospectively. The court ordered that companies would have to pay outstanding tax starting from April 1, 2005, in instalments over 12 years starting from April 1, 2026. States will not be able to demand any penalty or interest on the outstanding tax from April 1, 2005 to July 25, 2024.

Important decisions taken by the Supreme Court

Since 1999, state demands for tax on minerals have been rejected. The SC’s recent decision enables states to collect tax from April 1, 2005. Outstanding tax payments will begin from April 1, 2026, with no penalties being charged. Dues will need to be paid in instalments within 12 years.

Senior advocate Rakesh Dwivedi, who represented the Jharkhand government in this case, called it a historic decision. “The middle path is the best,” he told Mongabay India over the phone. “Therefore, the Supreme Court has adopted a middle path. You cannot say that collecting tax is right and yet not collect it. You cannot say that the state should not collect taxes. Nor can you say that they (the companies) should not pay any tax. This is the demand we had made,” he says.

However, in the last hearing, the central government had opposed the states’ demands to impose tax from 1989. Solicitor General Tushar Mehta had said in the court that this decision will impose a burden of more than Rs. 70,000 crores on government companies. He said that almost all industries are dependent on minerals and by doing so, the public would also have to suffer the consequences.

In the July 25 verdict the Supreme Court bench said: “States like Chhattisgarh, Jharkhand and Odisha have large reserves of minerals. In this way, the mining sector plays a greater role in the domestic development of these states. Despite being rich in minerals, many of these states lag behind in economic development and economists call this the ‘resource curse’. For example, per capita income in Jharkhand, Chhattisgarh and Odisha is lower than the national average. Therefore, taxation is one of the important sources of revenue for these states, which impacts their (states’) ability to provide welfare schemes and services to the people.”

The court also clarified that royalty is not a tax. “Royalty is the contractual value paid by the mining lessee to the lessor for the enjoyment of mineral rights,” Chief Justice Chandrachud said.

Dwivedi said, “This decision strengthens the federal structure of India and brings clarity to it, because everyone knows that under the constitution, the basic powers mostly rest with the centre. The states have less power. Therefore, there should not be any such interpretation of the constitution which would further reduce it (the rights of the state). Thus, it was an issue of fiscal federalism. It is important that states also get to exercise some powers. This decision also sends a message that the financial powers of the state should not be weakened.”

The Federation of Indian Miners Industries, however, has expressed concerns over the decision. B.K. Bhatia, the additional secretary general of the organisation, said that the Indian mining sector has the highest tax rate in the world and this decision will have affect mining in Odisha and Jharkhand.

Initiation of the case

This case that has been on for over two decades started when India Cement got a mining lease in Tamil Nadu and was paying royalty to the state government. Apart from royalty, the state government also imposed a cess. The company challenged this first in the Madras High Court and then in the Supreme Court. A seven-judge bench of the apex court, while ruling in favour of India Cement in 1989, said that the centre has the power to regulate mines and minerals under the law.

Apart from the petition of the Jharkhand government, more than 80 petitions were filed in this case. Since the earlier judgment was given by a seven-judge bench, the Supreme Court constituted a nine-judge constitution bench. The apex court acknowledged that the old decision was a mistake in treating royalty as tax.

Jharkhand to impose cess on mineral land

Jharkhand’s Chief Minister Hemant Soren described the Supreme Court’s decision as a big victory. He wrote in a post on the social meida platform X (formerly Twitter), “Now Jharkhand will get Rs. 1,36,000 crores of its dues from the centre. With this, along with securing the rights of the people of the state, this money will be used for public welfare and every Jharkhandi will get its full benefit.”

Amidst the decision of the Supreme Court and allegations and counter-allegations regarding non-payment of dues on the account of minerals, the Jharkhand Legislative Assembly has also passed a bill to impose cess on minerals. There is a provision in this bill to impose cess at different rates on different minerals.

Mithilesh Kumar Thakur, the mining department in-charge minister, introduced this bill on August 2 during the monsoon session. After this, the bill was passed by voice vote. There is also a provision in the bill which lists the items on which the amount received from cess can be spent.

Chief Minister Hemant Soren also expressed his views on the bill, calling it an important bill in the interest of the state. The Chief Minister said, “How, which will be charged on each mineral is fixed. I understand that many things keep changing from time to time. Sometimes, the price has to be reduced, sometimes it has to be increased. “The state government should have the right to increase or decrease the rates through notification.”

The government has left the way open for making changes in the law through notification. From time to time, changes in the rates or the item on which the amount received from cess will be spent can be changed through notification.

In the Jharkhand Mineral-Bearing Land Cess Bill 2024 that will come into effect after the publication of its notification in the Official Gazette, there is a provision to levy cess according to weight. Cess will be levied at the rate of Rs. 100 per metric ton for coal and iron ore. The rate on bauxite will be Rs. 70 per metric ton, while on limestone and manganese ore it will be Rs. 50 per metric ton. Apart from this, for other minerals, the cess will be 50 per cent of the royalty paid on every ton of mineral.

During the brief discussion on the bill, some MLAs put forward their concerns. MLAs Lambodar Mahato and Vinod Kumar Singh suggested sending the bill to a select committee so that it could analyse it. Vinod Kumar Singh told Mongabay India over the phone, “The bill should not have been brought immediately but in a little systematic manner. The tax imposed is weight-based. What we wanted to say was that it should be value-based. This (being weight-based) will harm Jharkhand because the price of minerals keeps changing.”

On this, Mithilesh Kumar Thakur, the minister in-charge of the Mines Department, presented the government’s side. He said that Jharkhand is full of mineral resources, with 40% of the country’s minerals produced here. He said that this bill has been brought after completing all the procedures, hence nullifying the need to send it to a select committee.

There is also a provision in the bill on spending the amount received from levying cess on minerals on certain items. This includes health services, schools and higher education, social security services, development of rural infrastructure, development of agriculture and allied sectors and other works as notified from time to time.

MLA Saryu Rai, who has been working for environmental protection in Jharkhand for a long time, presented his amendment during the discussion. He demanded to include environmental protection and pollution control in the above-mentioned works. However, this plea was not accepted. He shared his concerns that he raised in the Legislative Assembly with Mongabay-India. “Wherever mining takes place, it has an adverse impact on the environment. Pollution occurs. The people there do not get any benefit from it. When a 10-point agenda list has been prepared then the protection of environmental and pollution control should also be added to it,” he said.

Read more: Coal mining degraded 35% of native land cover in India’s central coal belt

Industry stalwarts express concerns

The industry seems worried about the bill passed in Jharkhand. It is believed that this will affect Coal India Limited and Tata Steel Limited. Although the rates are lower in coal and iron ores, the volume is very dense.

Taking the case of Coal India, many of its subsidiaries operate in Jharkhand. The prominent ones among them are Central Coalfields Limited and Bharat Coking Coal Limited. Both the companies have paid more than Rs 13,000 crore to the Jharkhand government in the financial year 2023-24. These include different types of royalties, GST and other taxes.

While Tata Steel mainly works in Jharkhand and Odisha, the company has many iron ore mines in Jharkhand, as well as captive coal mines. Tata Steel may have to pay more than Rs. 17,000 crore to Odisha as tax on minerals. The company has given this information in its exchange filing. In fact, Odisha had passed the Odisha Rural Infrastructure and Socio-Economic Development Act, 2004 implemented from February 1, 2005. Tata Steel had challenged it in the Odisha High Court, questioning the constitutionality of the law. But, after the changed circumstances, the company has made provision for this amount.

Meanwhile, the managing director of Tata Steel said that the impact of imposing cess on minerals will be visible across all industries. This will raise questions about the company’s profitability, and its abilities to invest. He said that India has the highest tax rate on minerals in the world. If taxes are high, the desire to produce more will go away. Now the central and state governments will have to consider this.

Jharkhand, a mineral rich state

Jharkhand has a strong position on the mineral map of the country as many types of minerals are available in abundance here. The state has 72.2 billion tonnes of coal of all categories, and 12 main coal fields. Jharkhand is the only state which has prime coking coal, which can be converted into metallurgical coke by feeding it directly into coke ovens with or without washing.

The state has reserves of both hematite and magnetite iron ores. Hematite reserves are mainly located in the West Singhbhum district and have a resource base of more than 3,700 million tonnes. Magnetite reserves are located in the East Singhbhum, Latehar and Palamu districts.

Bauxite is also abundant in Jharkhand which is equivalent to reserves of 68.1 metric tons. In terms of mining in the state, limestone is most prominent after coal, with total reserves measuring up to 511.104 metric tons. Jharkhand ranks first in coal reserves, second in iron reserves, third in copper ore reserves and seventh in bauxite reserves. Every year, about 160 million tonnes of different types of minerals are produced in the state at a total value of Rs 15,000 crores. The state received royalty of Rs 4,486.26 crore from all types of minerals in 2022-23. Beyond this, Jharkhand is the only state in the country to produce uranium and pyrite.

This story was reported by Mongabay-India’s Hindi team and first published here on our Hindi site on August 15, 2024.

Banner image: A coal mine. The Supreme Court had said in its decision that states have full right to impose tax on mining land. Image by Rahul Singh.

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Priyanka Shankar Editor

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CoalIndustryMiningIndiaJharkhand

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