UPSC Darpan

EconomyGS36 October 2026

Mining Tax Curbs Split Mineral States Along Lines of Dependence and Politics

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The news

New Delhi. A Hindu explainer by Safira Hussain (Lokniti-CSDS) and Sanjay Kumar maps State reactions to the Mines and Minerals (Development and Regulation) Amendment Act, 2026. Mineral receipts make up 85% of non-tax revenue in Jharkhand and 80% in Odisha, but only 11% in Telangana and 6% in Chhattisgarh. Karnataka, Telangana, Himachal Pradesh and Kerala plan to challenge the law in the Supreme Court. Jharkhand warns that cancelling uncollected past dues will hurt its social-security schemes. Odisha’s BJP government says the law causes no harm, and Madhya Pradesh, Rajasthan and Chhattisgarh have not objected. In ET, former CBIC chairman Najib Shah points to a similar fight over industrial alcohol ahead of Thursday’s GST Council meeting. The Supreme Court gave States power over it on 23 October 2024 (ET misprints the split as “9-8”; it was 8:1), yet it is still taxed under GST at 18%.

The chain in one line: In 2024 the Supreme Court rules that royalty is not a tax and that States may tax mineral rights and land → States raise claims for past dues → the Centre amends the MMDR Act to bar such levies except on its terms and cancels uncollected dues → mineral-dependent and Opposition-ruled States head to court

Static syllabus linkage

  1. Mineral Area Development Authority v. SAIL (2024) upheld the States’ power to tax mineral land. On 25 July 2024 a nine-judge bench ruled 8:1, with Justice B.V. Nagarathna dissenting, that royalty under the MMDR Act, 1957 is not a tax, overruling India Cement (1989). States may tax mineral rights under State List Entry 50, subject to Parliament’s limits. Their power to tax land under Entry 49 cannot be curtailed through Union List Entry 54.
  2. The Seventh Schedule divides mining between the Union and the States. State List Entry 23 covers mines and mineral development, subject to Union List Entry 54; the MMDR Act, 1957 is Parliament’s law under it. A power to regulate a subject does not by itself include a power to tax it.

Why UPSC loves this

  1. Fiscal federalism is a steady GS2 theme. GS2 covers “issues and challenges pertaining to the federal structure, devolution of powers and finances up to local levels”.

Prelims nuggets

  • In Mineral Area Development Authority v. Steel Authority of India (2024), a nine-judge bench held by 8:1 that royalty is not a tax.
  • State List Entry 23 (mines and mineral development) is subject to Union List Entry 54; State List Entries 49 and 50 cover taxes on lands and on mineral rights.
  • In State of U.P. v. Lalta Prasad Vaish (23 October 2024), a nine-judge bench held 8:1 that “intoxicating liquor” in State List Entry 8 includes industrial alcohol, overruling Synthetics & Chemicals (1990).

Analysis

  1. Lens — Short-term relief and long-term reform: cancelling past dues eases costs now but weakens trust in Centre–State bargains. The Centre has a point: overlapping levies make Indian minerals costly and push industry to imports. But cancelling dues that States could lawfully raise after 2024 rewards firms that did not pay, while those that complied get no refund, which is the Article 14 objection PRS raises. A better course is to cap future levies by a jointly agreed formula and leave past dues alone.
  2. Party alignment, not just dependence, decides which States fight. Odisha is nearly as mineral-dependent as Jharkhand yet sees no harm; Telangana loses little but is going to court. Dependence creates a stake; alignment decides whether it becomes a challenge. A party-split dispute is easier for the Centre to manage than a united front.
  3. Industrial alcohol shows the same pattern: the court rules, but the money does not move. States won the power to tax industrial alcohol in 2024, yet it still pays 18% GST with input tax credit. Shah therefore asks the GST Council to recognise the States’ power and the States to set excise near the effective GST burden. Courts settle who may tax; sharing still needs negotiation.

Possible Mains question

Does the MMDR Amendment Act, 2026 dilute the States’ taxing powers recognised by the Supreme Court in 2024? Comment. (10 marks, 150 words)

Model approach

  1. Directive — Comment. Give a reasoned opinion backed by evidence.
  2. Introduction — the Act limits a power the court confirmed. Levies barred except on the Centre’s terms; uncollected dues cancelled.
  3. Yes on land: Entry 49 cannot be cut down through Entry 54. Cite the 2024 verdict (8:1). Value addition: minerals are 85% of Jharkhand’s and 80% of Odisha’s non-tax revenue.
  4. Partly no on mineral rights: Entry 50 is subject to Parliament’s limits. Concede the cost argument. Diagram: Entry 23 → subject to Entry 54 → Entries 49 and 50, marked “regulate” and “tax”.
  5. Conclusion — agree future limits jointly and leave past dues alone. Propose a joint formula on the GST Council model.

Administrator's brainstorm

As Jharkhand’s Finance Secretary, how would you respond to the cancellation of past mineral dues?

I would first calculate the exact loss by mineral and year, since both a court case and a Finance Commission plea need precise numbers, and fund the social-security schemes first. I would back a Supreme Court challenge on the Entry 49 land-tax point, where the 2024 judgment is clearest, while staying open to a fair future-levy formula.