The latest amendment to the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act), which received the assent of the President on August 17, has brought about significant changes. Some are viewed as being in accord with the Supreme Court's decision in Mineral Area Development Authority v. Steel Authority of India (2024) (the MADA case - a nine-judge bench decision), but some that could very well be viewed as a direct challenge to what the Court has held in this landmark case.
The MADA case alters the position of law that had held the field since 1990, when a seven-judge bench of the Supreme Court, in India Cement Ltd v. State of Tamil Nadu (1990), held that the imposition of royalty by a State under Section 9 of the MMDR Act was really a levy of a tax relatable to Entry 50 in the State List, regulated by Parliament, tracing its power to Entry 54 in the Union List. It further held that the field of taxation with respect to Entry 50 stood occupied by virtue of Section 9 and that, as such, the State could not levy a cess on royalty. A cess, being a further tax, was not permitted by Section 9.
The issue at the heart of the controversy today is: can Parliament, through the present amendment, fetter the State's competence to levy tax on mineral-bearing lands by providing restrictions through the newly inserted Section 9D? The provision is not notified and no conditions have been prescribed under it by the Central government so far.
It is necessary first to understand what Section 9D actually does to the State's power over mineral-bearing land. It has both a prospective and a retrospective operation. Prospectively, it provides that the State shall not tax mineral-bearing land at all, whether the tax is measured by the quantity of mineral, its value, or the royalty payable, except in accordance with such conditions as the Central government may prescribe. Since no such conditions have been prescribed, the State's power to tax stands, for the present, wholly suspended.
The retrospective operation goes further. Any tax that a State had levied but had not collected before the amendment came into force is to be treated as invalid at all material times - from inception, notwithstanding any judgment, decree or order of any court. What a State had already collected is saved. The result is that the State's power to tax mineral-bearing land in future is suspended until the Union chooses to release it, while the dues that had already accrued to the State survive only to the extent that the money had actually reached the State treasury.
The backdrop to this specific amendment to the State's power is vital to judging the contours of the constitutional validity of Parliament's action. In the MADA case, the Union had argued, but to no avail, that Parliament could, by virtue of Entry 54 in the Union List, regulate the power of the State to levy a tax on mineral-bearing lands. In essence, it said that the tax on mineral-bearing lands was a tax on minerals, which was subject to parliamentary supremacy.
The Court's primary reason for rejecting this argument was that the State levies tax on mineral-bearing land by virtue of Entry 49, which, being wide and unqualified, brooked no narrowing down. Through constitutional construction, Entry 49 could not be cut down in the manner in which the Constitution had cut down the width of Entry 50 in the State List, using three devices:
(a) the limitation set out in Entry 50 itself;
(b) the limitation on the State legislature by virtue of Entry 23 in the State List, which was subject to parliamentary law relating to mineral development; and
(c) the language of Entry 54 in the Union List, which gave Parliament supremacy qua mineral development over the States.
In a twist now, Parliament has sought to undo what the Supreme Court in the MADA case had expressly rejected. It has, through Section 9D, fettered the State's legislative power to tax mineral-bearing lands. It has done so without amending the Constitution. In other words, the basis on which the Supreme Court had protected and upheld the State legislatures' competence to tax mineral-bearing lands in relation to Entry 49 of the State List remains as it was when the Supreme Court declared the law. Yet, Parliament, through its latest device, has sought to undo that declaration.
What makes the amendment more striking is the measure it has singled out. Section 9D forbids a tax on mineral-bearing land measured by mineral quantity, mineral value or the royalty payable. Yet, this is precisely the measure that the nine-judge Bench had held the State was entitled to adopt in taxing mineral-bearing land under Entry 49. In other words, Parliament has reached for the very yardstick that the Court had approved, and has forbidden its use.
The constitutional basis on which the Supreme Court upheld the State's competence under Entry 49 remains untouched. Parliament cannot, without altering that constitutional architecture, achieve through ordinary legislation what the Court has held to be within the State's legislative competence over mineral-bearing land. To permit it to do so would be nothing short of a legislative attempt to nullify a declaration of law by the Supreme Court.
There is enough case law over the past several decades, going back to Shri Prithvi Cotton Mills Ltd. v. Broach Borough Municipality (1969), which holds that Parliament cannot simply undo a declaration of law given by the Supreme Court. If Parliament wishes to undo its judgment, it must remove the basis on which the decision was given. Here, the basis was the constitutional architecture - Entry 49 standing in its full glory, unhindered and unfettered by any superseding power or authority.
One of the consequences of the MADA case was that the States became entitled to levy and collect tax on mineral-bearing land. By its order of August 14, 2024, giving effect to that decision, the Court permitted the States to recover such tax from April 1, 2005 and directed that the tax from that date be recovered over a period of 12 years commencing April 1, 2026. It is precisely here that Parliament has stepped in, with the device of its amendment, a little over 4 months after the recoveries could begin. When the effect of the amendment is seen against the backdrop of what MADA had permitted the States, it becomes evident that Parliament has intended to nullify this aspect of the decision.
Beyond that, the amendment, if interpreted the way the Union would like it to be, would result not only in the solemn constitutional principle of separation of powers being eroded, it would also make serious inroads into the federal structure that has been carefully built to ensure that States get their share of revenue. A qualification on the State's plenary power in relation to Entry 49 would eat into the State's pie of revenue and make States even more dependent on the Union, tilting the careful balance that the Constitution has set in place.
Parliament must critically review its amendment, which makes inroads into the State's taxation autonomy, before the Supreme Court revisits this issue, which it will, no doubt, in an appropriate case.
Kamaldeep Dayal is an advocate practising at the Supreme Court of India and the High Court of New Delhi.