MMDR amendment puts state taxing powers back in constitutional crosshairs

The Bill's restrictions on taxing mineral rights and mineral-bearing land have revived questions over Parliament's powers and could open the door to legal challenges by states

Constitutional questions on the taxing powers of states have been reopened two years after the Supreme Court settled key issues on this.

 

The Mines and Minerals (Development and Regulation) Amendment Bill, 2026, which is the central factor in this, was passed by Parliament this week and is awaiting presidential assent.

 

Its new Section, Section 9D, seeks to prevent states from imposing any tax, cess or levy on mineral rights or “mineral-bearing lands” except in accordance with conditions prescribed by the Centre.

 

The provision assumes significance against the backdrop of the Supreme Court’s July 25, 2024, judgment in Mineral Area Development Authority v Steel Authority of India.

 

The nine-judge Constitution Bench, by an 8:1 majority, held that royalty was not a tax and that states had the legislative competence, under Entry 50 of the State List of the Constitution, to impose levies on minerals.

 

Importantly, the court found that the MMDR Act, as it then stood, did not impose limits to such powers. It merely regulated royalty.

 

The judgment, however, also recognised that Parliament could subsequently impose restrictions, conditions or even a prohibition on the states’ powers through a law relating to mineral development.

 

The sharper issue concerns bringing mineral-bearing land into the Bill to bring it under the regulatory control of the Centre.

 

The Supreme Court had separately held that states could tax land under Entry 49, including by using the quantity or value of minerals extracted from the land, or royalty rates, as a measure of the tax.

 

Crucially, it held that Parliament’s powers to impose limits under Entry 50 did not extend to Entry 49.

 

Jharkhand Chief Minister Hemant Soren, in a letter to Prime Minister Narendra Modi on August 13, touched upon this constitutional and legislative issue.

 

In the letter, Soren said the restriction on taxing mineral-bearing lands appeared to travel beyond the field that Parliament might competently occupy by ordinary legislation and would require an amendment to Entry 49 itself rather than to the Mines and Minerals (Development and Regulation) Act, 1957. 

 

This is where the proposed amendment opened the door to legal challenge from states.

 

“The Amendment Act implements what the Supreme Court said Parliament can do in relation to mineral rights. However, placing limits on states’ powers to tax mineral-bearing lands is where the legislation makes a significant departure from the judgment,” said Ramanuj Kumar, partner and co-head, Projects (Energy & Energy Transition), Cyril Amarchand Mangaldas.

 

However, Shivanshu Thaplyal, partner at Khaitan & Co, said the amendment did not technically override the judgment because the Supreme Court itself recognised Parliament’s powers to impose limits on states’ taxation of minerals.

 

“The real constitutional question is whether this particular amendment amounts to a blanket prohibition rather than reasonable limits,” he said.

 

Section 9D’s attempt to cover mineral-bearing lands could, therefore, face a direct competence challenge.

 

“Redefining such land by prescribed parameters and folding it into the Union’s Entry 54 declaration does not create competence that the Constitution withholds,” said Akash Lamba, counsel at SKV Law Offices.

 

Entry 54 on the Union List gives Parliament the powers to regulate mines and mineral development. 

 

The amendment also proposes retrospective financial consequences. Mineral levies not deposited with or recovered by a state before the new law comes into force would be treated as invalid while the amounts already recovered would not be refundable.

 

This could extinguish outstanding liabilities arising from the Supreme Court’s August 14, 2024, consequential order, which allowed recovery of state demands dating back to April 1, 2005, in instalments over 12 years from April 1, 2026, while waiving the interest and penalties for the period before the judgment.

 

Lamba said this provision could be particularly vulnerable if viewed as an attempt to nullify a judicially mandated recovery schedule. The differential treatment of amounts already collected and unpaid dues could also invite an Article 14 challenge while the absence of clear legislative guidance on central conditions may raise concern about excessive delegation, he said. 

 

“It raises significant constitutional questions regarding the extent to which Parliament may, through the MMDR Act and delegated legislation, restrict taxing powers that the Supreme Court has recognised as belonging to the states. The Bill is, therefore, expected to invite close judicial scrutiny if enacted,” said Rahul Chouhan, partner, CMS INDUSLAW.

 

The constitutional battle, therefore, may ultimately turn on two questions: Whether Parliament has merely imposed a permissible limit on Entry 50, and whether it has impermissibly intruded into Entry 49, where the Supreme Court found no such parliamentary limit existed.