[Vaishnawi Sinha and Saahil Madan are third year law students at NALSAR University of Law, Hyderabad]
In November 2025, the Union Government approached the Supreme Court by filing a curative petition against the landmark nine-judge bench ruling rendered in July 2024 in Mineral Area Development Authority v. Steel Authority of India Ltd (“MADA”). Adding to the moment’s gravity, the Chief Justice of India had indicated that a nine-judge Constitution Bench may be convened as early as January 2026 to hear the curative plea. The decision in MADA was widely viewed as a seemingly progressive affirmation of fiscal federalism. By an 8:1 majority, the Court had held that the constitutional power to tax mineral rights vests with State legislatures. Yet, what appeared to be a doctrinal victory for federal balance has now returned to the constitutional chessboard. Is this judgment truly practicable in a complex, integrated economy? Or does it risk opening a Pandora’s box of overlapping levies and uneven fiscal burdens across States?
This post examines the judgment, unpacks the Union’s concerns, and explores what is at stake not only for the economy, but for the delicate equilibrium of fiscal federalism in India. By adopting a comparative lens, it proposes an alternative framework that preserves State autonomy while addressing the structural anxieties raised by the Union.
Background to the Dispute and the State’s Power to Tax Minerals
The constitutional distribution of powers over mines and minerals reflects a layered federal design. At the Union level, Entry 54 of List I empowers Parliament to legislate on the “regulation of mines and mineral development” to the extent it declares such control to be expedient in the public interest. It is under this entry that Parliament enacted the Mines and Minerals (Development and Regulation) Act, 1957 (“MMDR Act”), which regulates prospecting, mining leases, operational conditions, environmental safeguards, and the financial incidents of mining.
On the State side, Entry 23 of List II confers legislative power over the regulation of mines and mineral development, but this power is expressly made “subject to” Entry 54 of the Union List. Alongside regulatory powers, the Constitution separately allocates taxing powers. Entry 49 of List II authorises taxes on lands and buildings. Moreover, Entry 50 of List II empowers States to levy taxes on mineral rights, but with a crucial caveat: it is “subject to any limitations imposed by Parliament by law relating to mineral development.”
The controversy emerged when several mineral-rich States began levying additional cesses, duties, and taxes on minerals and mineral rights, over and above the royalties prescribed under the MMDR Act. Mining companies challenged these imposts, contending that once Parliament had fixed royalty rates under section 9 of the MMDR Act, States were constitutionally barred from imposing any further fiscal burdens on mineral extraction. The fulcrum of this argument was the characterisation of royalty: if royalty were a tax, then Parliament’s ceiling under the MMDR Act could be read as a limitation under Entry 50, thereby depriving States of further taxing competence.
This contention was affirmed by the Supreme Court in India Cement Ltd. v. State of Tamil Nadu (1990), where a seven-judge bench treated royalty as a tax and concluded that State legislatures lacked competence to levy additional taxes on minerals and mineral rights because the field stood governed by the MMDR Act. However, in State of West Bengal v. Kesoram Industries Ltd. (2004), a five-judge bench of the Supreme Court described the relevant passage in India Cement as an inadvertent typographical error, clarifying that royalty is not a tax.
These unresolved questions lead to the reference in MADA. The Court rejected the characterisation of royalty as a tax, holding it to be a contractual consideration for the grant of mining rights, and clarified that Parliament’s regulatory control under Entry 54 does not, by itself, exhaust the States’ independent taxing powers. Crucially, the Court held that Entry 50 confers plenary taxing authority on States over mineral rights, subject only to express statutory limitations imposed by Parliament, and that no such limitation exists in the MMDR Act. It further affirmed that Entry 49 permits States to tax mineral-bearing lands as a unit, even by using mineral output or royalty as a measure. By harmonising these entries, the Court upheld the States’ constitutional power to levy taxes on mines and minerals.
The Union’s Economic and Federal Concerns
From the Union’s standpoint, the MADA judgment carries potentially destabilising economic consequences. Seeking priority hearing of its curative petition, Solicitor General Tushar Mehta cautioned that the ruling allows “every State [to] decide mineral prices,” with serious ramifications for the economy. He warned that such decentralisation of mineral taxation could distort India’s federal structure and disrupt the harmonised development of mineral resources. The Centre had earlier urged the Court to make the judgment purely prospective, estimating that retrospective State levies could saddle public sector mining and mineral-dependent industries with liabilities of nearly ₹70,000 crore.
The Union’s legal challenge has been two-pronged. Firstly, it argued that royalty under section 9 of the MMDR Act is, in substance, a tax; therefore, Parliament’s ceiling on royalty should operate as a constitutional limitation on State taxing power under Entry 50 of the State List. Secondly, on Entry 49, the Union maintained that “land” cannot include subsoil minerals, and that permitting States to tax mineral-bearing land using mineral value as a measure would effectively convert a land tax into a tax on mineral rights, creating an overlap with Entry 50.
Beyond doctrine, the Union’s deeper anxiety lies in the economic and regulatory fallout. Minerals are essential inputs for steel, power, infrastructure, and manufacturing. Allowing States to impose disparate taxes risks fracturing the national market into uneven fiscal zones, undermining the “level playing field” embedded in Article 19(1)(g) of the Constitution. Industries located in high-tax States could be rendered uncompetitive, incentivising firms to migrate to jurisdictions offering lighter fiscal burdens, a classic “race to the bottom.”
These concerns found their articulation in Justice B.V. Nagarathna’s dissent. She highlighted the danger of unhealthy inter-State competition, where States, driven by short-term revenue imperatives, might impose arbitrary or excessive levies. This, she cautioned, could disadvantage industries purely on the basis of geography, raising serious Article 14 concerns and eroding legal certainty. She also flagged the risk of economic effects: decline in mining activity in heavily taxed States, increased imports draining foreign exchange reserves, and ripple effects on coal-based power tariffs as higher input costs are passed on to consumers.
Lessons From Abroad: Towards Coordinated Decentralisation
The Union’s anxieties cannot be brushed aside, particularly given the centrality of minerals to industrial growth, energy security, and long-term developmental planning. Yet, any assessment of these concerns must also be situated within the constitutional framework of fiscal federalism. The distribution of taxing powers under the Seventh Schedule to the Constitution is not accidental. Any dilution of State taxing competence directly constrains their capacity to fund welfare schemes, infrastructure, health, education, and local development. The growing judicial recognition of fiscal federalism, particularly after Union of India v. Mohit Minerals Pvt. Ltd. (2022), signals an acknowledgment that federalism is not exhausted by structural divisions of power, it also encompasses fiscal independence.
The present moment resembles a prisoner’s dilemma. States may rationally pursue short-term fiscal gains by escalating mineral levies or competing to become tax havens, even if such behaviour collectively undermines national industrial stability and coordinated mineral policy.
Constitutionally, a coordinated framework does not weaken State power; it strengthens it. Entries 23 and 50 of List II already contemplate State competence operating “subject to” Parliamentary policy on mineral development. That textual structure supports a model of concurrent taxation with guardrails: States retain the authority to tax mineral-bearing land and mineral rights, while Parliament supplies a light-touch framework law to facilitate coordination, transparency, and stability.
What should those guardrails look like? In the United States, States levy severance taxes and mineral taxes on extraction within their territories, while federal courts police only non-discrimination and interstate commerce limits. The federal government simultaneously collects corporate income tax and royalties on federal lands. This dual-track structure demonstrates that overlapping fiscal claims need not undermine State autonomy.
Canada offers an even clearer illustration of resource federalism. Provinces constitutionally have exclusive power to legislate upon natural resources and design royalty regimes tailored to their geology and fiscal needs, while the federal government collects general taxes and redistributes through equalisation transfers to manage inter-provincial inequality. Instead of centralising taxing power, Canada corrects horizontal imbalances through transfers.
Moreover, OECD guidance on mining taxation offers practical tools that States should adopt to prevent race-to-bottom situations. First, tax incentives and royalty waivers should be tightly targeted. Second, if incentives are used, they should be conditionally linked to minimum investment, job creation, or production thresholds, limited to defined extraction tonnage. Third, tax design should favour sliding-scale, incremental structures tied to prices or profitability, which reduce high-grading and under-reporting.
Conclusion
In these circumstances, A post-MADA framework should rest on three mutually reinforcing pillars:
Autonomy with Parliamentary Guardrails
Parliament should enact a framework statute laying down coordination norms, transparency requirements, fiscal-stability principles, and minimum disclosure standards for State mining taxes and incentives. This statute must preserve authority of the states to set the rates while mandating performance-linked, time-bound exemptions only based on OECD guidance. In return, the Union may continue to levy corporate income tax, royalties, or cess, as affirmed in MADA.
A Statutory Intergovernmental Fiscal Council for Resource Taxation
Modelled on, but weaker than, the GST Council, this body would recommend benchmark royalty bands, best-practice incentive design, and base-protection standards. Its role would be advisory and coordinating, not coercive, facilitating dialogue among States and between States and the Union while aligning decentralised taxation with national mineral-development objectives.
Institutional Integration of District Mineral Foundations (DMFs)
DMFs already function as a derivation-based resource-sharing system, funded by contributions over and above State royalties and earmarked for mining-affected areas. A reformed framework should recognise DMFs as a core pillar of fiscal federalism.
The Supreme Court has rightly restored State taxing power. The next task is not to dilute it, but to structure it in a way that makes decentralised fiscal authority durable, predictable, and economically resilient.
– Vaishnawi Sinha & Saahil Madan