Royalty paid on mineral extraction is not tax: Supreme Court overturns 1989 judgment

The royalty paid on extraction of minerals by the leaseholders cannot be considered as tax, the Supreme Court said in a majority verdict issued on Thursday, July 25.

The verdict, issued by a nine-judge bench led by Chief Justice of India (CJI) DY Chandrachud, overturns a 1989 judgment of the apex court that had ruled that royalty paid for extraction of minerals was tax.

The CJI, along with 7 other judges, ruled in favour of overturning the 1989 order. The sole dissenting judge on the bench was Justice B V Nagarathna.

Will the ruling be applicable retrospectively?

After the Supreme Court issued its verdict, lawyers in the courtroom asked the CJI-led bench to clarify whether the ruling will be applied retrospectively or prospectively.

The bench said it would be meeting again on July 31 to decide on how the order is to be made applicable.

However, a five-judge bench of the top court in 2004 said that the erstwhile order was a "typographical error".

This led to the matter being re-explored by another nine-judge bench, which was headed by the incumbent CJI. The bench heard 86 petitions filed by state governments, and reserved its verdict on March 14 this year.

In its latest verdict, the Supreme Court also held that the state governments have the legislative right to tax mineral rights. The legislative competence to tax mineral rights under the Union List is not with the Parliament, the bench observed.