Whose minerals are they: Union, state or Scheduled Tribes?

Can the binary of state versus Union in the ongoing Mineral Area Development Authority versus Steel Authority of India be suffused with a paradigm shift ensuring a greater say for tribal communities who live in mineral-rich Scheduled Areas?

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AN ongoing debate in the Supreme Court is being reported widely across mainstream media.

In a historic hearing in front of the nine-judge Bench of the Supreme Court, the question is who legitimately holds the right to recover revenue from mining minerals.

As the context is set, the answer is expected to be binary: the state or the Union. As the issue of mining often spills over to the Scheduled Areas, this piece intends to highlight relevant constitutional, statutory and Supreme Court positions to explore the possibility of rethinking the current debate.

In this piece, I primarily argue that the debate on mineral mining needs to be guided by the overall constitutional scheme of governance and cannot be reduced to binary answers in the interest of complete justice.

The current debate revolves primarily around the Union government's contention that the royalty hitherto imposed by state governments on mined minerals is like a tax.

Therefore, the Constitution, in Entry 50, as mentioned in the State List (List II) of the Seventh Schedule, empowers the Union government rather than the state government, to intervene in matters of royalty from mined minerals.

'Royalty' is a word used in the Constitution regarding the exploitation of minerals in the Sixth Scheduled Areas. However, without a clear definition in the Constitution, the use of royalty collected in the matter of mined minerals by states is open to judicial interpretations, and hence, varying interpretations in the past judgments of the Supreme Court have brought us to this historic nine-judge Bench hearing.

Royalty as tax

In 1989, in the case of India Cements Limited versus the State of Tamil Nadu, a seven-judge Bench declared that royalty was a tax, and hence, the Union government had a role to play in its collection.

Also read: Minerals: A Shared Inheritance for Future Generations

The seven-judge Bench judgment expanded the meanings of each Entry in the Seventh Scheduled by declaring that "the various Entries in the three lists are not powers but fields of legislation" that need to be interpreted in the larger governance framework provided by the Constitution.

As per the judgment: "Royalty, which is indirectly connected with land, cannot be said to be a tax directly on land as a unit. Royalty is payable on a proportion of the mineral extracted… There cannot be any doubt that the impugned legislation in its pith and substance is a tax on royalty and not a tax on land."

It related royalty collection to Entries 23 and 50 of List II to interpret how they will act given the existence of the Mines and Minerals (Regulation & Development) Act, 1957 (MMRDA).

Entry 23 specifies the "regulation of mines and mineral development subject to the provisions of List I with respect to regulation and development under the control of the Union," whereas entry 50 provides "taxes on mineral rights subject to any limitations imposed by the Parliament by law relating to mineral development".

Therefore, MMRDA altered the legislative authority in the Union government's favour.

As royalty is seen as a tax, the provisions of a parliamentary legislation applicable to the Union government— MMRDA— were applied, which denuded the state government's competence under Entry 23 to collect tax on minerals.

The MMRDA's Section 2 declares that it is expedient in the "public interest" that the Union of India should take under its control the regulation of mines and the development of minerals to the extent provided in the Act.

The judgment asserted that "royalty on mineral rights is not a tax on land but a payment for the use of land". To conceive payable royalty, it interestingly suggested that the "unit of charge of royalty is not only land but land, labour and capital". As such, the judgment does not clearly explain why mineral exploitation leading to revenue collection is seen as a tax in the first place.

Royalty as valid tax

As a consequence of the above judgment, state governments were immediately expected to lose revenue from mined minerals. A five-judge Bench of the Supreme Court in 2004 pointed out that to remove the drastic effect of the above judgment, the Union government enacted the Cess and Other Taxes on Minerals (Validation) Ordinance 1992 on February 15, 1992, which was further recognised by Act No. 16 of 1992 on April 4, 1992.

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The judgment held that "the Ordinance and the Act removed the infirmity and altered the bases of the legislation". In effect, this judgment did not make inconsistent interpretations often reported in the electronic media but provided broader clarifications and interpretations given the earlier judgment and explained how legislative actions assured the continuation of revenue streams from mined minerals to a state.

The judgment pointed out the application of legislative protection at the Union level to ensure the recovery of royalty from mined minerals to state governments.

The judgment noted that "the submission that the Central Act was only a piece of temporary legislation having a limited life to live was rejected, and it was held that the Act, ever since the date of its enactment, became operative and would continue to remain in force until the Parliament chose to repeal it".

Hence, the present debate engages the five-judge Bench interpretation of the Cess and Other Taxes on Minerals (Validation) Ordinance 1992 and constitutional provisions, particularly Entries mentioned in List I and II that provide who can legitimately collect revenue from mined minerals— the state or the Union government.

Amidst this debate about claiming revenue from mined minerals, this article presents a third, historically ignored claim of the Scheduled Tribes. 

Who owns minerals of Scheduled Areas?

It has become a norm for the government to claim rights to natural resources on the vague basis of 'public interest.' We have to realise that in the constitutional scheme, the government is one of the arms of how 'the people of India' intended it to engage with the other instrumentalities of governance provided in the Constitution.

Every institution given birth to by the Constitution needs to work in consonance with other institutions that the Constitution intends to produce and operationalise.

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The Supreme Court is expected to ensure such harmonious construction in the process of interpretations. Furthermore, several judgments of the Supreme Court have emphasised the need for interpretations that give effect to various provisions and parts of the Constitution so that the fruits of the constitutional scheme of governance become a reality for people who otherwise remain outside of the mainstream political debates.

In this context, it is essential to highlight the case of the Fifth Scheduled Areas, the relevant constitutional and statutory scheme of governance and the mostly ignored Samatha judgment of the Supreme Court.

The debate on who has the right to collect revenue from mined minerals needs to be qualified for the case of the Scheduled Areas. To advance this point in light of the ongoing legal debate, appropriate agencies representing the interests of the Scheduled Area should be asked to engage and make submissions, if any.

The significance of the Fifth Schedule of the Constitution cannot be emphasised more emphatically than by presenting how Dr Ambedkar summarised it. He asserted that the schedule constitutes "a State within the State" because of the mechanisms provided for the governance of the Scheduled Areas. The schedule recognised the vast authority of the state governors to ensure the welfare of Scheduled Tribes.

Scheduled Areas were not new to the framers of the Constitution. In the Government of India Act, 1935, more stringent protections were made for the customised governance of the Scheduled Areas (notably partially excluded areas).

The Constituent Assembly, however, relaxed some of the provisions as adopted in the Fifth Schedule. Nonetheless, the gravity of protecting the interests of the Scheduled Tribes can also be gauged from an Entry in the much-celebrated Part III of the Constitution.

Clause 5 of Article 19 provides options that can be used even to restrict free movement throughout the territory of India and to reside and settle in any part of India in the interest of any Scheduled Tribes. This was a consistent approach to protect their land and territory from outsiders and unreasonable settlements.

Also read: Dilution of Mining Norms: Linear Projects to be Considered Standalone

The Samatha judgment of 1997 is often hailed for providing important interpretations of provisions applicable to the Scheduled Area.

The judgment conceived the State operating through its cabinet structure as constituting a 'corporate sole' operating under the broader framework of the Constitution.

Importantly, it interpreted 'person' to "include both natural persons as well juristic person and constitutional government— transfer of land by juristic persons or allotment of land by State to non-tribals stand prohibited".

The judgment further held that "the object of the Fifth Schedule and the Regulation is to preserve tribal autonomy, their culture and economic empowerment to ensure social, economic and political justice for the preservation of peace and good government in the Scheduled Areas".

To provide statutory protection for self-rule in the Scheduled Areas, the government enacted the Provisions of the Panchayat (Extention to the Scheduled Areas) Act, 1996 (PESA) to further entrench self-rule in the Scheduled Area.

The PESA recognised "the power to prevent land alienation in the Scheduled Areas and to take appropriate action to restore any unlawfully alienated land of a Scheduled Tribe".

Further, the Act recognises the role of communities as it states, "The gram sabha or the panchayats at the appropriate level shall be consulted before making the acquisition of land in Scheduled Areas."

The reading of the PESA gives the sense that it intends to expand local self-governance institutions and let them manage their land and other resources. 

Given these constitutional provisions, statutory positions, and various Supreme Court judgments (e.g., Niyamgiri), can the question of who owns the right to collect revenue from mined minerals from Scheduled Area land be set to binary answers?

This short piece invites rethinking the possibilities of making distinctions in this debate on mining revenue based on types of land. Experience shows that the assumptions made by the framers of the Constitution that the state governors shall exercise their authority to protect the interests of the Scheduled Tribes broadly cannot be sustained.

Given the political expediencies, can the present debate in the Supreme Court do anything to activate constitutional provisions that remain dormant?