State legislatures are therefore empowered to tax land that contains minerals. Furthermore, the yield from mineral-bearing land can be utilized as a measure for taxation, and the value of minerals or mineral produce may also be used as a basis for imposing taxes on these lands.

To address the issues, the Court had to examine the nature and scope of royalty as defined in Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) and determine whether it could be classified as a tax. According to Section 9, holders of mining leases—whether granted before or after the MMDR Act's commencement—are required to pay royalties on minerals extracted or consumed from the leased area at rates specified in the Second Schedule.

The Central Government holds the authority to amend these royalty rates through notifications, though such adjustments are restricted to no more than once every three years.

Senior Advocate Rakesh Dwivedi appearing for the State of Jharkhand contended that the term "limitation" in Entry 50 List II (States' powers on taxing mineral rights) implies putting a cap on the power to tax rather than an outright transfer of this power to Parliament.

''Entry 50 List II doesn't grant the Union the power to tax mineral rights. He emphasized that it acts as a limitation on the state's authority rather than enabling the Parliament to tax. Hansaria argued that if royalty was deemed a tax, it should fall under specific entries between 82-92B of List I, and a limiting power on the state cannot transform into an enabling power for the Parliament.'', the Counsel for the state said.

On the other hand, Union and the Eastern Zone Mining Corporation argued that Entry 50 of List II extends beyond mere development or conservation and is specifically designed to address holistic national welfare. Representing the Union, Attorney General R. Venkataramani and Solicitor General Tushar Mehta presented this contention.

Senior Advocate Harish Salve, representing the Eastern Zone Mining Corporation, contended that the MMDR Act covers the entire domain of mineral rights, effectively overshadowing and completely restricting the States' powers over this subject.

Case Details : Mineral Area Development v. M/S Steel Authority Of India & Ors (CA N0. 4056/1999)