The Supreme Court of India has embarked on a crucial hearing concerning the classification of royalty payments on extracted minerals under the Mines and Minerals (Development and Regulation) Act of 1957. 

This long-standing legal conundrum, revolving around whether royalties should be construed as taxes, has resurfaced, prompting intense deliberations within the apex court.

At the heart of the matter lies a series of conflicting precedents dating back to landmark judgments in 1989 and 2004. In the case of India Cements Limited vs. State of Tamil Nadu, a seven-judge bench initially determined that royalties should be categorized as taxes. 

However, a subsequent ruling in 2004, in the case of State of West Bengal vs. Kesoram Industries Limited, contested this assertion, attributing the classification as a typographical error. Consequently, the issue was referred to a larger nine-judge bench for resolution.

Led by Chief Justice D Y Chandrachud, the nine-judge bench also comprising Justices Hrishikesh Roy, Abhay S Oka, B V Nagarathna, J B Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih commenced proceedings by hearing a batch of 86 appeals filed by mining companies, public sector undertakings (PSUs), and state governments. 

The appeals stem from conflicting verdicts handed down by various high courts across the country, exacerbating the need for clarity and consistency in legal interpretation.

Senior advocate Rakesh Dwivedi, representing the Mineral Areas Development Authority of Jharkhand, initiated arguments by emphasizing the magnitude of the case. Dwivedi underscored the significant financial implications, with states potentially facing revenue losses while mining entities could encounter increased fiscal burdens. He underscored the complexity of the issue, highlighting the potential economic ramifications running into thousands of crores.

In his submissions, Dwivedi contended that royalties, as outlined in the Mines and Minerals (Development and Regulation) Act, do not qualify as taxes. He emphasized that taxes typically serve as sovereign impositions to fulfill governmental needs, a distinction echoed in prior apex court rulings. Dwivedi also elucidated that royalties represent compensation paid to mineral owners, whether governmental or private, for the extraction of resources.

Further, he elucidated on the historical context, noting the absence of uniformity in mineral extraction regulations pre-independence. He argued that the subsequent pursuit of uniformity by Parliament did not automatically equate to royalties being classified as taxes. Dwivedi challenged the rationale behind the 1989 verdict, asserting that it lacked substantive deliberation and failed to consider alternative viewpoints.

During the proceedings, Justice Hrishikesh Roy raised queries regarding the coherence of the 1989 verdict's conclusion with its preceding arguments. 

Dwivedi seized the opportunity to critique the verdict's abrupt conclusion, asserting that subsequent high court interpretations had deviated from its premise.

The hearing was inconclusive and is set to resume on Wednesday.

Case: Mineral Area Development v. M/S Steel Authority Of India & Ors.