Mines Bill Rekindles Centre-State Federalism Debate

Why in the News ?

The Mines and Minerals (Development and Regulation) Amendment Bill, 2026 has reignited tensions between the Centre and States over taxation of mineral rights. States fear significant revenue losses, while the Centre argues that excessive levies increase mineral costs, fuel inflation and create uncertainty for mining investments.

Key Provisions and Centre’s Rationale:

●     The amendment seeks to restrict States from imposing specified cesses and levies on mineral rights and mineral-bearing land.

●     The move follows the Supreme Court’s landmark July 25, 2024 judgment, which recognised the power of States to tax mineral rights.

●     The judgment overturned the earlier India Cement Ltd. v. State of Tamil Nadu (1989) position that royalty was essentially a tax and States lacked competence to impose such taxes.

●     The Centre argues that multiple State-level levies could increase the cost of critical minerals, infrastructure projects and industrial inputs.

●     The proposed framework seeks to establish reasonable limits or safeguards on cumulative mineral-related levies after consultation with States.

●     The Bill also proposes extinguishing certain unpaid or unrecovered dues arising from such levies imposed before the amendment comes into force.

States’ Concerns: Revenue and Federalism

●     Mineral-rich States argue that mining revenues constitute an important component of their fiscal capacity.

●     Jharkhand has strongly opposed the amendments, with its Chief Minister highlighting the substantial contribution of mining-related revenue to the State’s own non-tax receipts.

●     States fear that restricting their taxation powers could reduce their ability to finance development and welfare programmes.

●     The proposed extinguishment of past dues is particularly contentious because States consider these legitimate revenue claims.

●     The dispute raises a broader question about fiscal federalism, particularly the constitutional distribution of taxation powers between the Union and States.

●     States have also sought greater consultation and transparency before imposing limits on their mineral-revenue powers.

About Mines, Minerals and Federalism:

●     Constitutional distribution of powers

○      Entry 54, Union List: Regulation of mines and mineral development to the extent declared by Parliament to be expedient in the public interest.

○      Entry 23, State List: Regulation of mines and mineral development, subject to Union control under Entry 54.

○      Entry 50, State List: States can impose taxes on mineral rights, subject to limitations imposed by Parliament relating to mineral development.

●     MMDR Act, 1957

○      The Mines and Minerals (Development and Regulation) Act, 1957 is the principal legislation governing mineral development in India.

○      It provides the framework for mineral concessions, mining leases, prospecting and regulation of mining activities.

○      The Central Government frames the broad regulatory framework, while States have important roles in granting mineral concessions and administering mining.

●     Royalty vs Tax

○      Royalty is generally a payment made by a mining lessee to the government for extracting minerals.

○      The distinction between royalty and tax has been central to Centre-State disputes over mineral taxation.

●     Supreme Court’s 2024 Judgment

○      In July 2024, the Supreme Court held that royalty is not a tax.

○      It also recognised the States’ legislative power to tax mineral rights under Entry 50 of the State List.

○      The judgment significantly strengthened the fiscal powers of mineral-rich States.

●     Important Institutions

○      District Mineral Foundation (DMF): Established for the benefit of people and areas affected by mining.

○      National Mineral Exploration and Development Trust (NMET): Promotes mineral exploration and related activities.