DC Edit | Mineral Rights Bill: Consult States

The Union government’s decision to introduce the Mines and Minerals (Development and Regulation) (MMDR) Amendment Bill to prevent uneven taxation of mineral rights and mineral-bearing lands in the country is welcome. The bill will lead to a predictable cost structure for mining companies across the country.

A uniform cost structure will promote ease of doing business for miners. The new bill will provide certainty, stability and predictability in the fiscal regime in the mineral sector. In the process, however, the bill infringes on the state government’s right to collect charges that the Supreme Court sanctioned.

According to a nine-judge bench of the Supreme Court, royalty is not a tax, and it is a contractual and financial consideration paid by a lessee to a lessor for the privilege of removing minerals, not a compulsory exaction or tax. This bill, however, states that “no tax, cess or such other levy (by whatever name called) shall be imposed by the state government on mineral rights”.

Though Entry 50 of the State List empowers the state government to tax extraction of minerals, Entry 54 of the Union List makes the state power subordinate to limitations imposed by the Centre by law. However, a nine-judge bench of the Supreme Court in 2024 ruled that the state government can collect royalty as it is not like tax, and therefore, not restricted by the MMDR Act.

The current bill effectively seeks to overturn the Constitution Bench’s judgment and denies the state government one of its revenue streams, which was duly declared valid by the Supreme Court.

While the objective of the amendment is understandable, the Central government needs to adopt a consultative approach on the issue and build consensus with states before snatching their source of revenue by force of law. The Centre should also make good the loss to state governments caused by this law.