Mining amendment is unfair to States
Recent amendments to the Mines and Minerals (Development and Regulation) Act, 1957 have renewed debate over how much fiscal control mineral-bearing States retain over resources located within their territory
The amendment restricts States from imposing new taxes, cesses or levies on mineral rights and mineral-bearing land — beyond royalty and District Mineral Foundation (DMF) contributions — except in a manner and to the extent the Centre permits
The change follows a landmark Supreme Court ruling that had expanded States' taxing powers over minerals, and is widely read as an attempt by the Centre to narrow that space through ordinary legislation
States argue this undercuts their constitutional entitlement to a "meaningful stake" in the value generated from resource extraction occurring on their land, given that they bear the associated infrastructural, environmental and social costs
Constitutional Basis: Union List Entry 54 and State List Entry 23
Mining and mineral regulation is a rare subject where legislative competence is split by declaration rather than a clean entry. Entry 23 of the State List (Seventh Schedule) gives States the power to regulate mines and mineral development, but this is expressly made "subject to the provisions of List I" — specifically Entry 54 of the Union List, which allows Parliament to occupy the field "to the extent... declared by Parliament by law to be expedient in the public interest." Parliament exercised this power under Article 246 by enacting the MMDR Act, 1957, which since then has been the dominant framework, leaving States with residual regulatory space.
Key Details
- Union List Entry 54: "Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be expedient in the public interest"
- State List Entry 23: regulation of mines and mineral development "subject to the provisions of List I"
- The MMDR Act, 1957 (Act 67 of 1957) was enacted under this Union declaration and remains the principal mining law, later amended in 2015, 2021 and 2023 to introduce auction-based allocation and expand the mineral list
The current amendment operates squarely within this Entry 54 declaration — because Parliament has already "occupied the field," it can further restrict what States may additionally levy on mineral rights, which is the crux of the States' federalism objection.
The 2024 Supreme Court Ruling on Royalty and State Taxation Powers
In Mineral Area Development Authority v. Steel Authority of India (July 2024), a nine-judge Constitution Bench held, by an 8:1 majority, that royalty paid under the MMDR Act is a contractual payment for the right to extract minerals and not a "tax," and that the MMDR Act does not exhaust or limit States' independent power to impose their own taxes on mineral rights and mineral-bearing land under the State List. The Court also permitted retrospective application of State mineral taxes, though it barred interest/penalty for periods before the judgment and capped retrospectivity at transactions from 1 April 2005 onward.
Key Details
- Decided by a 9-judge bench; majority opinion authored by then Chief Justice D.Y. Chandrachud; Justice B.V. Nagarathna dissented
- Held: royalty is not a tax; States retain legislative competence to tax mineral rights under Entry 50 of the State List (taxes on mineral rights, subject to any limitations Parliament imposes by law relating to mineral development)
- Permitted States to raise past tax demands but disallowed interest/penalty for the period before the 25 July 2024 judgment, with the cut-off for retrospective demands set at 1 April 2005
The amendment is widely seen as a legislative response to this judgment — by tightening what Parliament permits under the "limitations... by law relating to mineral development" proviso to Entry 50, the Centre narrows the very taxing space the Court had just affirmed for States.
District Mineral Foundation (DMF) and Revenue-Sharing with Mining-Affected Areas
The District Mineral Foundation, introduced through the 2015 amendment to the MMDR Act, is a non-profit trust set up in every district affected by mining, funded by a statutorily mandated contribution from mining leaseholders (in addition to royalty) and used for the welfare of persons and areas affected by mining-related operations, guided by the Pradhan Mantri Khanij Kshetra Kalyan Yojana (PMKKKY) framework.
Key Details
- DMF contribution rates are fixed as a percentage of royalty payable (typically 10% for major minerals leased after January 2015, 30% for leases granted before that date, with variations for coal/lignite)
- PMKKKY (2015) channels DMF funds into drinking water, health, education, environment and infrastructure in mining-affected districts, with 60% earmarked for "high priority" sectors
- The amendment leaves DMF and royalty collection mechanisms unchanged, meaning the fiscal dispute centres on the additional levies beyond these two channels, not on DMF itself
States' share of mining revenue (royalty plus DMF plus exploration-trust contributions) has grown in absolute terms over the past decade, but the amendment's critics argue that curbing supplementary state levies caps States' ability to capture a rising share of mineral value as commodity prices and production volumes increase.
- MMDR Act enacted: 1957 (Act 67 of 1957), under Union List Entry 54 read with Article 246
- Mineral Area Development Authority v. Steel Authority of India decided 25 July 2024 by a 9-judge bench, 8:1 majority; retrospective tax demands permitted from 1 April 2005
- DMF introduced via the 2015 MMDR amendment; funded by leaseholder contributions of about 10–30% of royalty depending on lease date
- Reported State revenue from major-mineral royalty/DMF/exploration trust contributions rose from roughly ₹13,586 crore (FY 2013-14) to over ₹82,000 crore (FY 2025-26)
- States currently retain an estimated 88-90% of total mining-sector revenue through royalty and DMF/exploration-trust contributions combined