Allowing States To Tax Minerals Will Lead To Unhealthy Competition Among Them, Cause Price Rise : Justice Nagarathna In Dissent

In her 193-page dissent holding royalty charged by the Parliament under Section 9 of the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) as tax, Justice B.V. Nagarathna has pointed out issues that could adversely impact the mineral development in the country.The Supreme Court nine-judge bench headed by Chief Justice of India, Dr D.Y. Chandrachud and comprising Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and AG Masih, by 8:1, held that royalty charged by the Union Government under the Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act) is not tax.The specific controversy arose out of the five judge bench in State of West Bengal vs. Kesoram Industries Ltd (2004), which held that the seven-judge bench of the Supreme Court in India Cement Ltd. vs State of Tamil Nadu (1990) incurred “typographically error” by holding “royalty is a tax” while it meant “cess on royalty is a tax”.Justice Nagarathna has held that if royalty within the scheme of Section 9 of MMDR is not held to be a tax, the same would allow States to impose taxes on mineral rights and above payment of royalty. The MMDR Act gives the Union legislative power relatable to Entry 54 of the Union List on regulating mines and developing minerals. Section 9 of the MMDR Act allows the Union Government to regulate royalty to be paid on mining leases in respect of any mineral removed or consumed from the leased areas at specific rates. Two Entries are in question here. Entry 50, List II says: “Taxes on mineral rights subject to any limitation imposed by Parliament by law relating to mineral development.”Entry 49, List which allows states to levy tax on land.In this regard, Justice Nagarathna observed: “This would also mean that the limitation that the Parliament has made by law on the taxing power of a State explicitly stated in Entry 50 – List II would be given a go by.”She added: “This would further imply that despite such a Parliamentary limitation, the States could pass laws imposing taxes, cesses, surcharge on cess, etc. on the basis of royalty which is in addition to payment of royalty. Further, that such levies could also be imposed under Entry 49 – List II thereby making Entry 50 – List II redundant is not acceptable.”Justice Nagarathna pointed out that there is a constitutional basis for why Parliament regulates royalty so that uniformity can be maintained. She added that this would lead to unhealthy competition between States for additional revenue. “As a sequitur, this would result in mineral development in the country in an uneven and haphazard manner and increase competition between the States and engage them into what has been termed by Louise Tillin in a 'race to the bottom' in a nationally sensitive market,” Justice Nagarathna averred. She warned that consequently, there could be an uneven increase in the cost of minerals resulting in black marketing. Justice Nagarathna stated: “The steep increase in prices of minerals would result in a hike in prices of all industrial and other products dependent on minerals as a raw material or for other infrastructural purposes. As a result, the overall economy of the country would be affected adversely which may result in certain entities or even non-extracting States resorting to importing minerals which would hamper foreign exchange reserves of the country.”She added: “It could also lead to a slump in mining activity in States which have mineral deposits owing to huge levies that have to be met by holders of mining licences. Further, another impact of this would be a unhealthy competition to obtain mining leases in States which have the mineral deposits and who do not wish to impose any other levy apart from royalty.”She concluded by adding that this would ultimately lead to a breakdown of the country's federal system in the context of mineral development and exercise of mineral rights. BackgroundIn the present case, a batch of petitions was filed in regard to the divergent views adopted by the Supreme Court in India Cement Ltd. vs State of Tamil Nadu (1990) and State of West Bengal vs. Kesoram Industries Ltd (2004). It concerned the legislative competence of the States on mineral rights under the MMDR Act. The MMDR Act gives the Union legislative power relatable to Entry 54 of the Union List under Schedule VII on the regulation of mines and the development of minerals. Section 9 of the MMDR Act allows the Union Government to regulate royalty to be paid on mining leases in respect of any mineral removed or consumed from the leased areas at specific rates. In India Cement judgment, a seven-judge Bench of the Supreme Court held that “royalty is tax” and State legislatures lack the competence to levy taxes on mineral rights as it is vested with the Union under the MMDR Act. In this case, Tamil Nadu government granted a lease to India Cement for limestone and Kankar under the MMDR Act. While the royalty was fixed...

Allowing States To Tax Minerals Will Lead To Unhealthy Competition Among Them, Cause Price Rise : Justice Nagarathna In Dissent

Gursimran Kaur Bakshi

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