Reclaiming the field: Mineral taxation, federalism and the MMDR (Amendment) Act 2026

The Mines and Minerals (Development and Regulation) Amendment Act, 2026 (the “2026 Act”/”Act”) introduces a significant shift in the fiscal framework governing India’s mineral sector. Coming shortly after the Supreme Court’s nine-judge Bench decision in Mineral Area Development Authority v. Steel Authority of India, (2024) 10 SCC 1 (MADA), the amendment seeks to clarify and, in important respects, reshape the limits within which States may impose levies connected with mineral rights and mineral-bearing land. The resulting questions of legislative competence, federalism and retrospectivity are likely to be closely tested before the courts.

The amendment is the latest in a series of changes to India’s mineral regulatory framework. The 2015 amendment introduced auctions; the 2021 amendment liberalised captive production; and the 2023 and 2025 amendments opened critical minerals to greater private participation. The 2026 Act takes the next step by seeking to establish a more uniform fiscal framework for mineral development. Its significance, however, extends beyond taxation: it raises broader questions about the constitutional balance between Union regulation and State taxing powers.

In July 2024, Supreme Court in MADA case (supra) held, 8:1, that royalty under the MMDR Act is not a tax but a contractual payment to the lessor, and overruled the seven-judge decision in India Cement Ltd. v. State of Tamil Nadu (1990) 1 SCC 12, which had been read for three decades as denying the States any power to impose levies referable to mineral rights.

The majority located two distinct heads of State competence: Entry 50 of List II, which permits taxes on mineral rights “subject to any limitations imposed by Parliament by law relating to mineral development”, and Entry 49 of List II, the general power to tax lands, which the Court held could reach mineral-bearing land using mineral value or yield as the measure. Hon’ble Justice Nagarathna, dissenting, warned that a patchwork of State levies would fragment the national mineral market. A consequential order followed in August 2024. The Court declined to make its ruling purely prospective: States could recover dues from April 1, 2005, though interest and penalties on amounts predating July 25, 2024, were waived and payment was to be staggered over twelve years beginning April 1, 2026. For the mineral-rich States like Odisha, Jharkhand, Chhattisgarh, Madhya Pradesh, West Bengal, this was a fiscal windfall estimated in the aggregate at well over a lakh crore; for miners, it was a retrospective liability of the same magnitude. It is that entitlement the 2026 Act now unwinds.

The 2026 Act works through three levers. First, it inserts a new Section 9D providing that no State shall impose “any tax, cess or other levy, by whatever name called” on mineral rights or on mineral-bearing lands except in accordance with conditions and restrictions prescribed by the Central Government. It also enlarges the Union's declared field. Section 2 the declaration of Union control that anchors the statute to Entry 54 of List I, now speaks of the “regulation of mines and mineral-bearing lands”, not merely mines, and a definition of “mineral-bearing land” is introduced, with the power to prescribe conditions vested in the Centre through a new clause in Section 13. Third, and most contentiously, Section 9D carries a non-obstante clause deeming any such levy “not deposited with or recovered by” the State before commencement to be invalid “at all material times”, overriding any other law or judgment, while expressly protecting amounts already collected from refund. The stated objects are coherent enough: a uniform, predictable and competitive mineral-tax regime, lower input costs for critical-mineral and downstream industries, and reduced import dependence at a time when the annual mineral import bill exceeds ₹10 lakh crore. The government points out that the States continue to receive the overwhelming share, roughly 88 to 90 percent of mining-sector revenue through royalty and District Mineral Foundation and exploration-trust contributions. In substance, Parliament has done what the MADA majority said it was entitled to do: exercise the “limitation” that Entry 50 reserves to it.

On Entry 50, the Act stands on defensible ground, if contested. The majority in MADA  recognised Parliament’s ability to circumscribe the States' power to tax mineral rights.  A law that regulates, rather than extinguishes that power may therefore be more likely to withstand constitutional scrutiny. The real question, therefore, is whether Section 9D of the MMDR Act, read with its applicable rule, imposes a reasonable limitation on the State’s taxing power or operates, in substance, as a blanket prohibition . If the latter, it may raise questions as to whether the provision effectively undermines such taxing power envisaged by Entry 50.

The Act appears more vulnerable on Entry 49. Unlike Entry 50, the State’s power to tax lands contains no express subordination to parliamentary limitations, and MADA itself recognised that the Union’s regulatory authority under Entry 54 does not extend to Entry 49. By defining “mineral-bearing land” and seeking to bring such land within an expanded Union field, the 2026 Act arguably seeks to qualify a taxing power that the Constitution assigns to the States. A legislative definition, however, cannot by itself alter the constitutional distribution of legislative competence. This raises a potential question of colourable legislation.

That the contours of “mineral-bearing land” are left to subordinate rules further complicates the position, raising a question of excessive delegation: the executive could potentially widen or narrow the scope of the prohibition without further legislative intervention. The retrospective invalidation provision may present the Act’s most significant constitutional vulnerability. A legislature may cure a defect identified by a court and validate a levy on a fresh constitutional basis; it may not, by legislative declaration alone, render a judicial determination ineffective. It is a settled principle that the legislature must remove the basis of a judgment rather than merely override its result. MADA rested on the constitutional allocation of legislative power under Entries 49 and 50, which the 2026 Act does not purport to alter. Against that background, deeming uncollected dues invalid “at all material times” could be characterised as going beyond validation and instead operating to reverse the legal consequences of an adjudicated liability.

The no-refund proviso may also raise a potential Article 14 issue. States and assessees that collected amounts before commencement are permitted to retain them, while those that had not collected them lose the corresponding revenue, creating a classification based principally on the timing of collection. Whether that distinction has a sufficient rational basis would require further examination. For the States, the practical consequences are significant: both the revenue recognised by the Court as constitutionally permissible and the arrears that States were permitted to recover from 2005 would be affected, pending the framing of the Central rules. Jharkhand and Kerala have reportedly raised concerns on federalism grounds, while it has also been argued that curtailing the States’ taxing power under Entry 49 may require a constitutional amendment rather than an ordinary statute. Challenges under Article 131, as well as writ proceedings under Articles 32 and 226, may therefore follow, potentially bringing the issue before a Constitution Bench for consideration of the limits of Parliament’s power to alter the legal consequences of a prior judicial determination.

For mining companies and their lenders, the Act is a double-edged relief. It removes, at a stroke, the prospect of cumulative and unpredictable State cesses layered on royalty, and it appears to extinguish the post-2005 arrears that had begun to surface as contingent liabilities on balance sheets.  However, the durability of that relief ultimately depends on the validity of the Act itself. Prudence, therefore, suggests that businesses should not write back these provisions in haste, as that may prove premature. If the retrospective clause or the Entry 49 restriction is subsequently struck down, State demands may revive, potentially leaving businesses that  reversed such provisions exposed to renewed liabilities. Transaction documents such as share-purchase agreements, financing terms, tax indemnities etc. should treat the position as unsettled, with specific representations on mineral-levy exposure and MADA arrears rather than using regular boilerplate clauses. For the critical-minerals agenda that the 2023 and 2025 amendments set in motion, the 2026 Act could be genuinely enabling. Tax certainty improves the bankability of lithium, cobalt, graphite and rare-earth projects whose economics are marginal and long-dated, and a single national tax profile removes a real deterrent to exploration capital. Downstream consumers such as steel, aluminium, cement, power and the emerging battery sector, gain input-cost predictability.  

The view on the other side is that the most affected are likely to be the mineral-bearing States, several of which are among the country’s poorer States, as the legislation may constrain the fiscal autonomy that the Court had recently recognised.

The 2026 Act is best understood as a considered attempt to test whether the Union’s power to regulate mineral development, coupled with the limitation clause in Entry 50, is sufficiently broad to qualify as a taxing power deliberately divided by the Constitution. On mineral rights, that approach may withstand scrutiny. On mineral-bearing land, and particularly on the retrospective treatment of adjudicated dues, however, it raises more difficult questions under the constitutional provisions and existing precedent. The critical-minerals objective is sound and nationally important; however, the taxation framework adopted to advance it is less certain. The settlement that MADA appeared to offer has therefore not fully materialised; instead, the controversy has shifted to new constitutional questions. The sector should accordingly prepare for continued uncertainty over provisioning until the Supreme Court determines the validity and scope of the current government intervention.

About the authors: Arpita Mukherjee is a Senior Partner and Khushboo Kataruka is a Partner at Hammurabi & Solomon Partners.

Disclaimer: The opinions expressed in this article are those of the author(s). The opinions presented do not necessarily reflect the views of Bar & Bench.

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