Royalty not in nature of tax but consideration for enjoyment of mineral rights
A 9 (nine) judges Constitution Bench of the Hon'ble Supreme Court of India (“Supreme Court”) in the case of Mineral Area Development Authority and Anr. vs. Steel Authority of India and Anr.1 held that royalty is not in the nature of tax and therefore, States have the authority to impose taxes on mineral rights. The dispute stems from the fact that several States sought to impose taxes on mineral bearing land in pursuance of Entry 49 of List II of the Constitution of India by applying mineral value or royalty as the measure of tax. The SLP2 was filed in the Supreme Court on the primary ground that levy of royalty on mineral rights was beyond legislative competence of State Legislatures.
The Supreme Court observed that royalty cannot be equated to a tax, as royalty is consideration paid by a mining lessee to the lessor for enjoyment of mineral rights and to compensate for the loss of value of minerals suffered by the owner of the minerals. The liability to pay royalty arises out of the contractual conditions of the mining lease. The failure of the lessee to pay royalty is considered to be a breach of the terms of the contract, allowing the lessor to determine the lease and initiate proceedings for recovery against the lessee. Further, Section 9 of MMDR Act3 statutorily regulates the right of a lessor to receive consideration in the form of royalty from the lessee for removing or carrying away minerals from the leased area. Further, while royalty is a consideration towards value of minerals, tax is an imposition of a sovereign. It was also observed that royalty is paid in consideration of doing a particular action, that is, extracting minerals from the soil, while tax is generally levied with respect to a taxable event determined by law.
The Supreme Court also emphasised on the fact that the levy of royalty is contractual in nature and flows from the agreement executed between the parties for extraction of minerals whereas tax is imposed by the Government on an event determined by law. Accordingly, royalty would not be comprehended within the meaning of the expression ‘taxes on mineral rights'.
The Supreme Court concluded that the States have the legislative power to tax mineral rights and therefore, upheld the levy of tax on royalty paid for enjoying mineral rights.
HDPE poly packs sold to distributors are wholesale packages, not subject to Section 4A of the Central Excise Act4
In the case of Commissioner of Central Excise vs. Miraj Products Pvt. Ltd.5, an appeal was filed by the Commissioner of Central Excise (“Commissioner”), contesting the CESTAT6's decision on whether the goods sold by Miraj Products Pvt. Ltd. (“Respondent”) in HDPE poly packs to distributors should be classified under Section 4 or Section 4A of the Central Excise Act. The dispute originated from SCNs7 issued to the Respondent for the period April 2003 to December 2003. These SCNs alleged that the Respondent was not complying with the valuation norms required under the Central Excise Act and was accused of improperly packaging 33 (thirty-three) pouches of chewing tobacco (of 6 (six) grams each) and one pouch of 15 (fifteen) grams into larger HDPE poly packs, with the allegation that these larger packs were intended for retail sale.
The Commissioner, in an order dated July 19, 2005, upheld the SCNs and concluded that the larger poly packs were group packages intended for retail sale. The Respondent's argument that these were wholesale packages, was disregarded and the Commissioner determined that the inclusion of MRP8 on the poly packs indicated an intent for retail sale, thereby, necessitating compliance with Section 4A of the Central Excise Act. The CESTAT, however, reversed this decision, ruling that the poly packs, which were packed in HDPE bags and sold to distributors qualified as wholesale packages.
The Supreme Court upheld the decision of the CESTAT and noted that the smaller packs were indeed bundled into HDPE bags and sold to intermediaries and not directly to consumers. Relying on the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, the CESTAT held that HDPE bags qualify as wholesale packages, which are exempt from the retail price declaration requirements of Section 4A of the Central Excise Act.
Footnotes
1. 2024 (8) TMI 956
2. Special leave petition
3. Mines and Minerals (Development and Regulation) Act, 1957
4. Central Excise Act, 1944
5. 2024 (7) TMI 476 – Supreme Court
6. Customs Excise and Service Tax Appellate Tribunal
7. Show Cause Notice
8. Maximum Retail Price
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