Subject: “Critical Minerals,Rare Earth,Other Minerals”

Why in the News

State governments where the Congress is in power are preparing to challenge the Mines and Minerals (Development and Regulation) Amendment Act, 2026 in the Supreme Court, on the ground that it undermines the rights of the States. The Act, passed by the House on 13 August 2026, seeks to curb the power of States to levy taxes on mineral rights and mineral bearing lands. That power was confirmed as belonging to the States by a nine judge Bench two years ago, so the dispute is over whether Parliament can legislate away a taxing entry the Court has read as independent.

What is the Mines and Minerals (Development and Regulation) Act, 1957?

1. What it is: The Mines and Minerals (Development and Regulation) Act, 1957, referred to as the MMDR Act, is the parent law governing every mineral in India except petroleum and natural gas.
2. The core split it creates: The State Government owns the mineral in its territory. The Central Government decides the rules, fixes the royalty rate for major minerals and, for some categories, conducts the auction.
3. How a block reaches a miner: Someone auctions the block, the State signs the lease, and the company mines. The State signs the lease in every case, including where the Centre ran the auction.
4. Where the money goes: Royalty, dead rent and the auction premium go to the State in every case, with offshore blocks the only exception.

What is the current status of State taxing power over minerals in India?

1. The settled position since 2024: A nine judge Bench of the Supreme Court in Mineral Area Development Authority v Steel Authority of India, decided eight to one in 2024, held that States hold an independent power under Entry 50 of the State List to levy taxes on mineral rights, and that the MMDR Act does not take that power away.
2. The distinction the ruling rests on: Royalty is not a tax. It is consideration paid to the State as the owner of the mineral, which is why a State levy on mineral rights is a separate and additional exercise of power.
3. What the ruling overturned: India Cement v State of Tamil Nadu (1990), which had held royalty to be a tax and State cesses on royalty to be beyond State competence, stands overruled.
4. The recovery window: States may recover past dues from 1 April 2005, in instalments spread over twelve years beginning 1 April 2026, without interest or penalty on the earlier period.
5. What the ruling did not give the States: It conferred a power to tax mineral rights, not a power to fix the royalty rate. Royalty rates for major minerals continue to be set centrally under the Second Schedule to the MMDR Act.
6. What the 2026 amendment now does to that position: The Act passed on 13 August 2026 seeks to curb the power of States to levy taxes on mineral rights and mineral bearing lands, which is the power the 2024 ruling had recognised.

Constitutional Provisions Related to Mineral Rights and Legislative Competence

1. Entry 54, Union List: Regulation of mines and mineral development, to the extent that Parliament by law declares such Union control to be expedient in the public interest.
2. Entry 23, State List: Regulation of mines and mineral development, expressly made subject to the provisions of Entry 54 of the Union List.
3. Entry 50, State List: Taxes on mineral rights, subject to any limitations imposed by Parliament by law relating to mineral development.
4. Entry 49, State List: Taxes on lands and buildings, the entry under which States tax mineral bearing land.
5. Entry 55, Union List: Regulation of labour and safety in mines and oilfields.
6. Article 297: Vests in the Union all lands, minerals and other things of value underlying the ocean within the territorial waters, the continental shelf and the exclusive economic zone.
7. Article 246: Distributes legislative power between Parliament and the State legislatures across the three Lists.
8. Article 265: Provides that no tax shall be levied or collected except by authority of law.
9. Article 131: Confers original jurisdiction on the Supreme Court in a dispute between the Government of India and one or more States, the route through which a State sues over a central statute.

What is royalty on minerals?

1. What it is: Royalty is the payment a lessee makes to the owner of the mineral for the mineral removed or consumed, calculated mostly on an ad valorem basis on the average sale price published by the Indian Bureau of Mines.
2. Who sets it and who receives it: The Centre fixes the rate for major minerals through the Second Schedule to the MMDR Act, and the State fixes it for minor minerals. The State Government receives it in both cases.

What is a minor mineral?

1. The statutory definition: Section 3(e) of the MMDR Act names building stones, gravel, ordinary clay and ordinary sand as minor minerals, and allows the Centre to notify any other mineral as minor. Everything not notified as minor is a major mineral, defined negatively with no positive list.
2. Who controls them: Section 15 gives States exclusive power to frame minor mineral rules and to fix minor mineral royalty, so the Centre’s power over minor minerals is limited to deciding what enters the category.

What does the Mines and Minerals (Development and Regulation) Amendment Act, 2026 change?

1. The core change: The Act seeks to curb the power of States to levy taxes on mineral rights and on mineral bearing lands.
2. The scope claimed for it: The Centre states that it is seeking to regulate only major minerals such as coal, limestone, iron ore, copper and manganese.
3. What is stated to be left untouched: The States would continue to have powers over 49 minor minerals.
4. The stated purpose: The Union Minister of Mines told the Rajya Sabha that the legislation does not seek to interfere with the autonomy or revenue rights of States, and that it aims only to ensure uniform mineral rates across the country.
5. The stage it has reached: The Act was passed by the House on 13 August 2026.

Which States are challenging the Act and on what ground?

1. The States on board: Karnataka, Telangana and Himachal Pradesh are already committed to challenging the amendment Act in the Supreme Court.
2. The State still being negotiated: The Congress is in talks with its ally the Jharkhand Mukti Morcha to get the Jharkhand government to join the challenge.
3. The stated ground: The party alleges that the law undermines the rights of the States.
4. The demand short of litigation: The Karnataka Deputy Chief Minister urged the Centre to withdraw the amendment Act, objecting to its restrictive provisions.
5. The federal framing from Kerala: The Kerala Chief Minister stated that the amendments to the Act are against federal principles.

How can a State challenge a central law?

1. The original suit route: A State may institute an original suit against the Government of India in the Supreme Court under Article 131, which is the route available where the dispute involves a question on which a legal right of the State depends.
2. The writ route is not open to a State in the same way: Article 32 is a remedy for enforcement of fundamental rights, and a State is not a person entitled to fundamental rights, so a State ordinarily proceeds under Article 131 rather than Article 32.
3. Why the choice of route matters here: An Article 131 suit frames the matter as a Centre State dispute over legislative competence rather than as a grievance of an affected mining company.
4. The competence question that will be argued: The dispute turns on whether the 2026 Act is a limitation of the kind Entry 50 permits Parliament to impose, or an extinguishing of the entry itself.
5. The precedent that will be relied on: The 2024 nine judge ruling held that the MMDR Act as it then stood did not take away the Entry 50 power, which leaves open whether a later Act can impose limitations that empty it.

Major debates surrounding State taxation of mineral rights

1. Ownership against regulation: The State owns the mineral and receives the royalty, while the Centre fixes the rate and writes the rules, so the party bearing the social and environmental cost of mining does not set the price of it.
2. Competing readings of one entry: Entry 50 is read either as a State power with a boundary Parliament may draw, or as a power Parliament may narrow until nothing is left of it.
3. A tax entry against a regulatory entry: Entry 54 of the Union List is a regulatory entry over mineral development, and the question is whether a regulatory power carries with it the power to restrict a taxing entry in the State List.
4. Two landmark rulings in tension: India Cement (1990) treated royalty as a tax and denied State competence, and Mineral Area Development Authority (2024) treated royalty as consideration and affirmed it, so the sector has operated under opposite rules within one generation.
5. Uniform rates against fiscal autonomy: Uniform mineral rates across the country lower input cost volatility for steel, aluminium, cement and power, and remove a revenue instrument from the States where those minerals lie.
6. The retrospective recovery question: Permitting recovery of dues from 1 April 2005 in instalments from 1 April 2026 exposes mineral users to a large accumulated liability, which is the practical trigger for legislative intervention.
7. The empirical gap the dispute turns on: There is no agreed estimate of what the recovered dues and future State levies would add to the delivered cost of coal, iron ore and limestone, so both the revenue claim and the input cost claim rest on projections.

Challenges to the new mineral taxation framework

1. A single change alters two revenue streams at once: Curbing taxes on mineral rights and on mineral bearing lands touches Entry 50 and Entry 49 together, so States lose both an activity based and a property based levy. Eg. Several mineral States had begun framing levies immediately after the 2024 ruling recognised the Entry 50 power.
2. Litigation freezes revenue planning on both sides: States cannot budget on a levy under challenge, and miners cannot provide for a liability that may be extinguished. Eg. Karnataka, Telangana and Himachal Pradesh have already committed to moving the Supreme Court against the Act.
3. Uniform national rates ignore differences in deposit quality: A single rate across States taxes a high grade and a low grade deposit identically, which penalises the State with the harder ore body. Eg. Iron ore grades differ sharply between Odisha, Karnataka and Goa, with different beneficiation costs.
4. The retrospective window collides with the amendment: Recovery of dues from 1 April 2005 was to start in instalments from 1 April 2026, the same period in which the curbing Act was passed. Eg. The twelve year instalment schedule the Court allowed begins precisely when the new restriction takes effect.
5. The distinction between royalty and tax remains contestable in practice: A State levy structured on the royalty amount can be characterised as a tax on mineral rights or as a levy on land, which invites classification disputes at every notification. Eg. District Mineral Foundation contributions are already computed on the royalty amount rather than on sale value.
6. Mining States bear the externalities regardless of the tax outcome: Land degradation, dust pollution, groundwater disruption and displacement fall on the district whether or not the State can levy. Eg. The mineral belt overlaps the Fifth Schedule tribal belt almost exactly.
7. Investment decisions stall while competence is unsettled: Long gestation mining projects require certainty on the total payment stack over a fifty year lease. Eg. A mining lease under the MMDR Act runs for fifty years, far longer than the litigation cycle over the levy.

Conclusion

The Mines and Minerals (Development and Regulation) Amendment Act, 2026 has been passed by the House on 13 August 2026 and seeks to curb State powers to tax mineral rights and mineral bearing lands. The next step is a challenge in the Supreme Court, with Karnataka, Telangana and Himachal Pradesh committed and Jharkhand still under negotiation, and the source states no date for filing. The dispute is not about who owns the mineral, which is settled, but about whether a taxing entry in the State List can be narrowed by a central law made under a regulatory entry in the Union List. Until that is answered, the sector operates with two revenue claims on the same rupee.

“[2025] Consider the following statements:

Statement I: In India, State Governments have no power for making rules for grant of concessions in respect of extraction of minor minerals even though such minerals are located in their territories.

Statement II: In India, the Central Government has the power to notify minor minerals under the relevant law.

Which one of the following is correct in respect of the above statements?

(a) Both Statement I and Statement II are correct and Statement II explains Statement I

(b) Both Statement I and Statement II are correct but Statement II does not explain Statement I

(c) Statement I is correct but Statement II is not correct

(d) Statement I is not correct but Statement II is correct |