Govt notifies MMDR Act even as states threaten to move Supreme Court
The Union government notified the Mines and Minerals (Development and Regulation) Amendment Act, 2026, after it cleared both Houses of Parliament and received presidential assent. The Act inserts a new provision (Section 9D) barring states from taxing mineral rights or mineral-bearing land in any form unless permitted by central rules.
Several state governments have indicated they will move the Supreme Court against the notified Act, arguing it curtails a taxation power the states say was affirmed by an earlier apex court ruling.
Any state levy on mineral rights not collected before the amendment takes effect stands void; amounts already collected are protected, but assessed-but-uncollected dues face uncertainty.
The dispute has significant fiscal stakes for mineral-rich states, given the scale of dues involved in mineral-royalty related taxation going back nearly two decades.
Constitutional Distribution of Powers Over Mines (Seventh Schedule)
Article 246 of the Constitution distributes legislative subjects between the Union and states through the Seventh Schedule's three lists. Entry 54 of the Union List covers "regulation of mines and mineral development" to the extent Parliament declares it expedient in the public interest — the basis for the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act). Entry 50 of the State List allows states to levy taxes on mineral rights, but this power is expressly "subject to any limitations imposed by Parliament by law relating to mineral development."
Key Details
- Entry 54 (Union List) is a regulatory entry, not a taxing entry; Entry 50 (State List) is the specific taxing entry for mineral rights.
- The Supreme Court has clarified that regulatory entries (like Entry 54) cannot be stretched to cover taxation, since taxation entries are listed separately in the Constitution.
- The 1957 MMDR Act is the principal central law occupying the regulatory field under Entry 54.
The newly notified amendment adds a fresh restriction under Entry 54's regulatory umbrella (via Parliament-made rules) on how far states can go in taxing mineral rights under their Entry 50 power — reigniting the exact federalism question the courts had earlier examined.
Mineral Area Development Authority v. Steel Authority of India (2024)
In July 2024, a nine-judge Constitution Bench of the Supreme Court ruled by an 8:1 majority that royalty paid under the MMDR Act, 1957 is a contractual payment by a mining lessee to the lessor for the right to extract minerals, and is not a "tax." This meant states retain the power under Entry 50 (State List) to impose their own taxes on mineral rights and mineral-bearing land, separate from the royalty payable to the Union-notified scheme. The ruling overruled the seven-judge bench decision in India Cement Ltd. v. State of Tamil Nadu (1990), which had held royalty to be a tax and denied states this taxing power.
Key Details
- Decided 25 July 2024; majority 8:1; Justice B.V. Nagarathna delivered the sole dissent, warning that letting states tax freely could trigger a "race to the bottom" in mineral-rich regions competing for investment.
- A follow-up order made the ruling retrospectively applicable from 1 April 2005, with any resulting tax dues payable in staggered instalments (no penalty or interest) starting 1 April 2026.
- The judgment interpreted Entries 50 and 54 as distinct from generic taxation entries, reaffirming that regulatory entries cannot be read to include fiscal powers.
The 2026 amendment is widely read as a legislative response curbing the taxing latitude states gained from the 2024 ruling, by inserting a new restriction (Section 9D) that limits mineral-rights taxation unless allowed under Centre-made rules — setting up the states' threatened constitutional challenge.
District Mineral Foundation (DMF) and National Mineral Exploration Trust (NMET)
Both bodies were created by the MMDR Amendment Act, 2015 to channel mining-linked revenue toward welfare and exploration. The District Mineral Foundation is a non-profit trust set up by state governments in mining-affected districts, funded by a share of royalty paid by miners, used for the welfare of communities affected by mining. The National Mineral Exploration Trust is a central non-profit body funded by a cess on royalty, dedicated to regional and detailed mineral exploration.
Key Details
- DMF contribution: 30% of royalty for mining leases granted before 2015, and 10% for leases granted through auction after 2015.
- DMFs operate in mining-affected districts across mineral-bearing states; funds are meant for local infrastructure, health, education, and environment.
- NMET was established under the 2015 amendment to fund exploration activities and reduce India's import dependence on minerals.
These institutions represent an existing, settled channel of mining revenue-sharing between Centre and states/districts; the current dispute is distinct, concerning states' independent power to levy their own taxes on mineral rights beyond this royalty-sharing framework.
- Section 9D (new provision inserted by the 2026 amendment) bars state taxation of mineral rights/mineral-bearing land unless Centre-notified rules permit it.
- The 2024 Mineral Area Development Authority judgment: 9-judge bench, 8:1 majority, retrospective effect from 1 April 2005, staggered tax recovery over 12 years starting 1 April 2026.
- Entry 54 = Union List (regulation of mines); Entry 50 = State List (taxes on mineral rights), both under the Seventh Schedule, Article 246.
- DMF royalty-share: 30% (pre-2015 leases) / 10% (post-2015 auctioned leases); NMET is funded via a separate cess on royalty.
- The MMDR Act's parent legislation dates to 1957; the DMF/NMET framework was added via the 2015 amendment.