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New Delhi: India’s Supreme Court on Thursday ruled that mineral royalties are not taxes, dealing a blow to the central government and confirming the right of states to levy tax on land with mines and minerals.
A nine-judge bench led by Chief Justice DY Chandrachud ruled by a majority of 8:1 that mineral royalties are not taxes. The court has directed the central government and states to file written arguments and the final verdict is expected on July 31.
The ruling will benefit the mineral-rich states of Jharkhand and Odisha, which had sought a Supreme Court ruling to recover hundreds of billions of rupees in taxes levied so far by the central government on mines and minerals.
The states also asked the court to apply the ruling retrospectively to ensure the central government refunds taxes. However, Solicitor General Tushar Mehta, representing the central government, strongly opposed the request, arguing that the ruling can only be applied prospectively.
The chief justice read out the key part of the majority verdict and said the 1989 ruling by a seven-judge Constitution bench of the Supreme Court that classified royalties as a tax was erroneous.
“Royalty is not in the nature of a tax as it is the contractual consideration paid by the lessee for the mining lease. Neither royalty nor dead leases have the character of a tax. The judgment in the India Cements case (1989 judgment) holding that royalty is a tax is overturned,” PTI quoted the CJI as saying.
Royalties are payments made by users to owners of intellectual property or real estate assets.
Under Article 49, states have the power to tax land and buildings, while Article 50 allows states to tax mineral rights, subject to any restrictions placed by Parliament on the development of minerals.
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