The Madhya Pradesh High court, Jabalpur Bench, while hearing the writ petitions stated that the issue with regard to exigibility of tax on royalty payments is still pending before the Supreme Court and likely to be listed shortly.
The bench of Acting Chief Justice Sanjeev Sachdeva and Justice Vinay Saraf has clarified that in all cases, the Revenue is permitted to proceed with the show cause notice and even adjudicate the same. However, in case, adverse order is passed, it shall not be enforced against the petitioners till the next date of hearing.
The court listed the batch of petitions in the week commencing 25.11.2024.
Whether ‘Royalty’ Is A ‘Tax’; Supreme Court Directs The Matter To Be Before Appropriate Bench
The Supreme Court has presided over the controversy of whether ‘Royalty’ Is A ‘Tax’ or not.
The court concluded that royalty is in the nature of a tax or an exaction. It is not merely a contractual payment but a statutory levy under Section 9 of the Act (Section 9A relating to dead rent). The liability to pay royalty does not arise purely out of the contractual conditions of a binding lease. The payment of royalty to the Government is a tax in view of Entry 50 – List II being subject to any limitations imposed by Parliament by law in the context of Entry 54 – List-I read with Section 2 of the MMDR Act, 1957.
The court said that the majority decision in Kesoram is a serious departure from the law laid down by the seven- judge Bench in India Cement which was wholly unwarranted and therefore, in my view, the said majority judgment is liable to be overruled and is overruled to the extent of holding that royalty is not a tax.
At the same time the court stated, “the conclusion that ‘royalty’ is a ‘tax’ is the only exception to the position of law laid down in MPV Sundararamier. Of course, the scope of expression “any limitations” in Entry 50 – List II is wide enough to include the imposition of restrictions, conditions, principles as well as a prohibition.”
The court opined that the judgments in India Cement, Orissa Cement, Mahalaxmi Fabric Mills, Saurasthra Cement, Mahanadi Coalfields, Kannadasan excluding to the extent overruled in Tata Iron and Steel, and Tata Iron and Steel are correct and therefore are binding precedent and cannot be overruled. On the other hand, the majority judgment in Kesoram, is overruled to the extent it holds that royalty is not a tax.
The court observed that Entry 50 – List II is an exception to the position of law laid down in MPV Sundararamier vs. State ofAndhra Pradesh, AIR 1958 SC 468 (“MPV Sundararamier”). Moreover, in the said case, the scope and ambit as well the implication of Entry 54 – List I on Entry 50 – List II was not considered at all. Therefore, the principle stated in MPV Sundararamier is foreign to the instant case and the ratio of the said decision does not apply to the present case. No doubt, the legislative power to tax mineral rights vests with the State legislature but Parliament, though may not have an express power to tax mineral rights under Entry 54 – List I, it being a general Entry, Parliament can, nevertheless on the strength of Entry 54 – List I read with Section 2 of the MMDR Act, 1957, impose any limitation on the power of the States to tax mineral rights under Entry 50 – List II. Sections 9 and 9A of the MMDR Act, 1957 are two such instances of limitations imposed by the Parliament on the taxing power of the State under Entry 50 – List II. This is a unique Entry and must be given its true and complete meaning and while interpreting the same one cannot be swayed by the principles laid down in MPV Sundararamier as the same do not apply in the instant case. At the cost of repetition, it is stated that Entry 50 – List II never came for consideration in the case.
The court has directed the registry to place the matters before the Chief Justice of India for directions on listing the matters before the appropriate Bench.
Case Title: M/S Anand Mining Corporation Vs Union Of India And Others
Case No.: WP/6084/2017
Date: 03-09-2024
Counsel For Petitioner: Shoeb Hasan Khan
Counsel For Respondent: Siddharth Seth
