NEW DELHI: A nine-judge constitution bench of the Supreme Court on Thursday reserved its verdict on a batch of petitions on crucial issues of whether royalty on minerals is a tax and if taxes levied additionally by states were legally permissible, observing that states rich in natural resources continued to be poor.

“The reality today is that states which have the mineral resources are the poorer states and people (companies) are going from outside and exploiting minerals,” observed the bench headed by Chief Justice of India (CJI) Dhananjaya Y Chandrachud.

The union government and mining companies have opposed giving states the power to tax minerals, arguing that major minerals were unevenly distributed across states with some having substantial quantities of minerals like coal, iron ore, bauxite and manganese as compared to others having little or no major mineral resources. The Centre also reasoned that states rich in minerals could impose heavy taxes on minerals, raising their price, increasing imports and affecting the economy.

Senior advocate Rakesh Dwivedi, who appeared for Jharkhand, responded to the bench’s observation. “This is the question the court must ask. That why is it that people in states rich in minerals are poor despite 75 years of independence. States also have to answer that. But uneven distribution of minerals is a boon, not a bane.”

Dwivedi said the uneven distribution of minerals has led to trade and commerce in India and the mobility of persons from one place to another. “Our economic unity is built on this differential distribution which is being decried by the Centre as if states are hellbent on destabilising the Centre. The states constitute India. They are Bharat. We have surrendered our powers willingly because we felt that the country must unite and now we are being told that you are acting to destabilise.”

The bench, also comprising justices Hrishikesh Roy, AS Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, Satish Chandra Sharma and Augustine George Masih, asked: “Until actual extraction of mineral takes place, is it possible that the right to the land surface rests with one government (state) and right to minerals rests with another government (Centre).”

The Centre has argued that under Entry 54 of Union List, it has exclusive control over mines and minerals and in exercise of this power, Parliament enacted the Mines and Minerals (Development and Regulation) Act, 1957 which takes away the state’s power to tax in this field. It is under this Act that the royalty is fixed by the Centre but it goes into the state’s coffers.

Dwivedi also responded to the arguments of mining companies which oppose tax by states. He said, “Look at who is complaining, Vedanta, Adani, Ambani, and Tata. They are trying to paint disaster and doomsday if states will be allowed to impose tax. Unless they produce their balance sheets, they should not be heard to say some disaster is in the offing. They are worried their profits will come down.”

The Centre summarised its arguments before the court. “Minerals being the building block of any nation, represent a key sector for development and regulation at the federal level. The centrally regulated fixation of the amount to be levied by the state government ensures the uniformization of the price regime. The said uniformisation, apart from being in larger economic interest for the nation, also serves as a key tool for rationalisation of the utilization and usage of the mineral in general.”

The bench allowed solicitor general Tushar Mehta to present a brief written note on the Centre’s arguments and permitted senior advocate Harish Salve. appearing for mining companies, to file a short note to rebut any additional point raised by Dwivedi.

Over 80 petitions were referred to the nine-judge bench in March 2011 after the top court found a conflict between two judgments – a 1989 verdict by a seven-judge bench in India Cements Limited versus State of Tamil Nadu which held royalty is a tax under the MMDR Act, and a five-judge bench decision of 2004 in State of West Bengal versus Kesoram Industries which held that in India Cements, the court had mistakenly written “royalty is a tax” while it meant that “cess on royalty is a tax”.

An affidavit filed by the Centre last month indicated that over 78% of coal resources are extracted in Odisha, Jharkhand, Chhattisgarh and West Bengal while 90% of iron ore in the country comes from four states – Chhattisgarh, Jharkhand, Odisha and Karnataka, according to National Minerals Inventory. Similarly, Karnataka, Odisha, Madhya Pradesh and Maharashtra account for 82% of manganese produced in the country, over 95% of chromite comes from Odisha alone, and about 73% of bauxite is generated by Andhra Pradesh, Odisha and Chhattisgarh.