The Centre-states tussle over the Mines and Minerals Bill

Why in the News

Parliament passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026 last week, barring States from imposing specified levies on mineral rights and on mineral bearing land. The bar removes the very taxing power the Supreme Court had affirmed for States on 25 July 2024. Mineral bearing States say the change strips out a revenue stream they control fully, while the Centre says uncapped State levies raise the cost of minerals for the whole economy.

What is the Mines and Minerals (Development and Regulation) Amendment Bill, 2026?

1. About: It amends the Mines and Minerals (Development and Regulation) Act, 1957, the parent law governing grant of mineral concessions and regulation of mines.
2. Core bar: It restricts States from imposing specified levies on mineral rights and on mineral bearing land.
3. Extinguishment of past dues: It wipes out unpaid or unrecovered dues arising from such levies imposed before the amendment comes into force.
4. Scale of the dues: Estimates place outstanding dues of this kind across the mining sector at about Rs 2 lakh crore.
5. Ceiling design: Mines Ministry officials state that about 14 levies in the mineral sector will survive, subject to a combined percentage ceiling.
6. Stated purpose: The Centre frames the measure as fiscal certainty for mining companies over their total statutory burden.

What is royalty on minerals?

1. About: Royalty is the payment a lease holder makes to the State government for every unit of mineral extracted under a mining lease.
2. Who fixes it: Rates are specified in the Schedules to the Mines and Minerals (Development and Regulation) Act, 1957 and revised by the Union government, not by the State that receives the money.

What is the District Mineral Foundation?

1. About: A non profit trust set up in every mining affected district, funded by a statutory contribution from lease holders, created by the 2015 amendment.
2. Use of funds: Money is spent on people and areas affected by mining under the Pradhan Mantri Khanij Kshetra Kalyan Yojana.

What is the National Mineral Exploration Trust?

1. About: A trust created by the 2015 amendment and funded by a contribution equal to 2 per cent of royalty paid by lease holders.
2. Use of funds: It finances regional and detailed mineral exploration through accredited agencies.

What is the current status of State powers to tax mineral rights in India?

1. Judicial position: A nine judge Constitution Bench held on 25 July 2024 that States hold legislative competence to tax mineral rights and mineral bearing land.
2. Precedent overruled: That ruling overruled India Cement Ltd v State of Tamil Nadu (1989), which had treated royalty as a tax and placed the subject beyond State competence.
3. Statutory position now: The 2026 amendment bars the specified levies, so a power the Court restored stands narrowed by ordinary legislation.
4. Levies that survive: About 14 levies continue, including environmental and pollution cesses, subject to a combined ceiling still to be fixed.
5. Centrally fixed payments: Royalty, District Mineral Foundation contributions and National Mineral Exploration Trust contributions remain set under central law.
6. Effect on accrued claims: Levies imposed before commencement lose their recoverability, so demands already raised become unenforceable.

Constitutional Provisions Related to taxation of mineral rights

1. Article 246: Distributes legislative power between Parliament and State legislatures through the three lists of the Seventh Schedule.
2. Entry 54, Union List: Regulation of mines and mineral development to the extent Parliament declares expedient in the public interest.
3. Entry 23, State List: Regulation of mines and mineral development, expressly subject to Entry 54 of the Union List.
4. Entry 49, State List: Taxes on lands and buildings, the entry States have relied on for a mineral bearing land cess.
5. Entry 50, State List: Taxes on mineral rights, subject to any limitations imposed by Parliament by law relating to mineral development.
6. Article 265: Bars the levy or collection of any tax except by authority of law.
7. Article 300A: Bars deprivation of property save by authority of law, the provision invoked when accrued statutory dues are extinguished.
8. Article 39(b): Directs the State to ensure that ownership and control of material resources are distributed to subserve the common good.

Why does the 25 July 2024 ruling sit at the centre of the dispute?

1. What was decided: The Court upheld the power of States to tax mineral rights and mineral bearing land as a distinct field from royalty.
2. What was overruled: The 1989 India Cement position, that royalty is itself a tax, had blocked States from taxing the same subject for 35 years.
3. What States did next: Several mineral bearing States began framing fresh cesses on mineral bearing land after the judgment.
4. What the Centre saw: Mines Ministry officials describe the resulting levies as excessive cesses stacked on top of existing statutory payments.
5. How Parliament responded: The amendment uses the limitation power built into Entry 50 to restrict what the Court had permitted.

Why do mineral bearing States say the Bill damages their finances?

1. Dependence on mining: Mining revenue accounted for about 84.9 per cent of Jharkhand’s own non tax revenue in the 2024 to 2025 financial year.
2. Forgone cess: The Mineral Bearing Land Cess was expected to yield about Rs 11,000 crore a year for Jharkhand alone.
3. Dues written off: Outstanding dues across the mining sector estimated at about Rs 2 lakh crore cease to be recoverable.
4. Fiscal capacity argument: The Jharkhand Chief Minister wrote to the Prime Minister that mineral revenues are a critical component of the State’s fiscal capacity and not marginal receipts.
5. Federal objection: The Kerala Chief Minister has raised concerns over the implications of the amendment for India’s federal structure.
6. Political response: Jharkhand has threatened protests against the amendments.

What is the Centre’s case for restricting State levies?

1. Cost of key minerals: Unchecked State levies raise mineral prices and feed into inflation and infrastructure costs.
2. Predictability for industry: A single combined ceiling gives mining companies certainty over their total fiscal burden across States.
3. Cumulative burden: Companies already pay royalty, District Mineral Foundation and National Mineral Exploration Trust contributions and environmental and pollution cesses.
4. The largest single addition: Industry assessment identifies the mineral bearing land tax as the biggest additional burden of the recent levies.
5. A ceiling, not abolition: About 14 levies survive, with the combined percentage to be fixed after consulting all States.
6. Limited realised loss: Industry view holds that most of these levies were legally contested for decades, so little was actually collected.

Does fiscal certainty for industry justify overriding a power the Court has just affirmed?

1. Two legitimate claims: Investment certainty in a capital heavy sector sits against the fiscal autonomy of the States that hold the minerals.
2. A judicial gain reversed: States won the power in 2024 and lost its practical use in 2026 without any change in the constitutional text.
3. The retrospective element: Extinguishing accrued dues removes revenue already claimed, which goes further than limiting future levies.
4. Sequence of consultation: The ceiling is to be fixed after the bar is enacted, so States negotiate the number after losing their leverage.
5. Who gains and who pays: The saving accrues to mining companies and mineral consuming States, the loss falls on a small group of mineral bearing States.
6. Cost borne locally: Land loss, displacement and pollution stay with the producing State even after its claim on the rent is narrowed.

Major debates surrounding taxation of mineral rights

1. Royalty as tax or as consideration: India Cement treated royalty as a tax, the 2024 ruling treated it as contractual consideration, and that classification decides State competence.
2. Reach of the Entry 50 limitation: How far Parliament may hollow out a State taxing entry through a limitation clause remains legally contested.
3. Recovery of past dues: The 2024 ruling allowed staggered recovery of past demands, the amendment extinguishes them outright.
4. Producer against consumer States: Mineral bearing States argue they carry the ecological and social cost while value addition and tax revenue accrue elsewhere.
5. Cooperative against unilateral federalism: The Centre frames the change as integration of a national market, States frame it as unilateral action on their own revenue base.
6. Deepening vertical fiscal imbalance: Non tax mineral revenue is one of the few sources States control fully, so its removal raises dependence on central transfers.

Challenges to the Mines and Minerals Amendment Bill

1. Litigation risk: States can challenge the bar and the extinguishment of accrued dues as a colourable exercise of legislative power. e.g. Jharkhand and Kerala both registered formal objections within days of the Bill’s passage in August 2026.
2. Concentrated revenue shock: A small set of States carries almost the entire loss. e.g. Odisha and Jharkhand together account for the bulk of India’s iron ore and coal output.
3. Undecided ceiling: The combined percentage is unfixed at the point of enactment, leaving States unable to plan budgets. e.g. the Mines Ministry states only that the figure will follow consultation with all States.
4. Weak district level spending: Money already collected for mining affected areas is poorly used. e.g. audits have repeatedly flagged large unspent District Mineral Foundation balances in mining districts.
5. Unpriced ecological damage: Removing land based levies weakens the price signal for land degradation. e.g. the Shah Commission findings preceded the suspension of iron ore mining in Goa in 2012.
6. Certainty alone does not unlock supply: Fiscal predictability does not resolve clearance and land bottlenecks. e.g. several auctioned coal blocks remain unoperationalised for want of forest clearance.
7. Weak consultation machinery: Resource disputes between the Union and States lack a standing forum for settlement. e.g. the Inter State Council has met only rarely since its creation in 1990.

Conclusion

The dispute is about who captures the rent from a fixed natural resource, not about the rate of any single cess. Parliament has passed the Mines and Minerals (Development and Regulation) Amendment Bill, 2026, and the measure now moves to Presidential assent and commencement. The next concrete step named by the Mines Ministry is fixing the combined percentage ceiling on the roughly 14 surviving levies after consulting all States. Until that ceiling is notified, mineral bearing States carry a quantified loss against an unquantified entitlement.

“[2025, GS2, 15 marks] Examine the evolving pattern of Centre-State financial relations in the context of planned development in India. How far have the recent reforms impacted the fiscal federalism in India?”