Royalty Is Not a Tax; States Can Tax Mineral Rights and Mineral-Bearing Land: Nine-Judge Bench (8:1)

India Cement, a seven-Judge decision, held royalty to be a tax; a Constitution Bench in Kesoram later said this stemmed from an inadvertent error (Chandrachud CJI, para 2). States then taxed mineral-bearing land using mineral value or royalty as the measure (Chandrachud CJI, para 3). In the lead appeal, the Patna High Court, relying on India Cement, held a Bihar tax on land used for mining to be outside Entry 49 (Chandrachud CJI, para 4). On 30 March 2011 a three-Judge Bench referred the conflict to nine Judges, and the questions were reframed with the parties' agreement (Chandrachud CJI, paras 4-5).

Royalty is a consideration paid by the lessee to the lessor for enjoying mineral rights, and the liability flows from the mining lease (Chandrachud CJI, para 123). Fixing its rate under Section 9 or recovering it as arrears under Section 25 does not make it a compulsory exaction (Chandrachud CJI, para 125). The statement in India Cement that royalty is a tax was therefore incorrect (Chandrachud CJI, para 130). Parliament cannot impose taxes on minerals under Entry 54 of List I, so Entry 50 is no exception to Sundararamier (Chandrachud CJI, para 207). A limitation on plenary legislative power must be express (Chandrachud CJI, para 215). Sections 9, 9A, 9B and 9C impose no limitation on the States under Entry 50 (Chandrachud CJI, para 231), though "any limitations" can extend to a prohibition (Chandrachud CJI, para 245). Entries 49 and 50 operate in different fields, so mineral produce or royalty may measure a tax on land (Chandrachud CJI, paras 339, 341). Nagarathna J. dissented: royalty is a tax or exaction, the MMDR Act limits Entry 50, and Entry 49 does not reach mineral-bearing land (Nagarathna J., para 41).