Regular Entries In 7th Schedule Of Constitution Can't Be Given Wider Interpretation To Include Taxation Powers : Supreme Court

The Supreme Court has recently held that regular entries under List I and II of the 7th Schedule of the Constitution cannot be given a wider interpretation to include taxation powers which are covered under the domain of specific tax entries under the 7th Schedule. The 9 Judge Constitution Bench led by CJI DY Chandrachud observed this while holding that States have the power to levy tax on mineral rights under Entry 50 List II and that the Union law - Mines and Minerals (Development and Regulation) Act 1957 (enacted under Entry 54 List I) - do not limit such power of the States. The relevant entries state as follows: Entry 50 List II: States' powers on taxing mineral rights. The State Governments have the authority to impose taxes on the extraction and subsequent use of minerals within their territories. However, such a power is subject to 'any limitations imposed by Parliament by law relating to mineral development' Entry 54 List I: Power of the Parliament to regulate mines and mineral development to the extent to which such regulation and development is deemed as per a Parliamentary Law to be necessary in the public interest.The Court held that Entry 50 List II and Entry 54 List I are regulatory entries and do not expressly come under 'taxing entries' which are listed separately under the respective Union and State Lists.The Court observed that enlisting tax on mineral rights in List II is a constitutional entrustment to the states. Thus expanding the scope of regular entries such as Entry 54 List I to include taxation power would grant arbitrary and unconstitutional authority to both Union and States.“Giving an extended interpretation to regular entries to include the power of taxation will grant arbitrary and unconstitutional authority to the Union and the States.”It further explained that Entry 54 in List I, being general, doesn't include taxation power. Parliament can't use residuary powers to gain legislative competence for taxing mineral rights if it's not in Entry 54 List I. The Court is required to respect the constitutional distribution of federal powers.“The enumeration of tax on mineral rights in List II is a constitutional entrustment to the states. This Court is bound to abide by the Constitutional distribution of the legislative powers.”Entry 50 List II Not An Exception To The Sundararamier PrincipleThe Court analysed that Entry 50 List II is not a carved exception to the well-accepted 'Sundararamier Principle'. This principle states that taxing entries are listed separately from general entries in Lists I and II of the 7th Schedule and taxation powers can't be derived from regulatory legislative entries. Such power can only be invoked from specific taxing entries.It was recognised that legislatures may have incidental and subsidiary powers for legislative entries, but taxation power could be considered incidental or subsidiary to powers granted under regular entries.“Entry 50 List II is not an exception to the Sundararamier Principle which is that taxing entries are enumerated separately from the general entries in List I and II of the 7th Schedule. The field of taxation cannot be derived from regulatory legislative entries, it has to be derived from specific taxing entries. This principle has now been well entrenched in our Constitutional jurisprudence.”The Court emphasized that the ambit of Entry 50 List II is only limited to the laws made by the Parliament in relation to 'mineral development'. Thus the power to tax has to be expressly present in an Entry and cannot be implied from regulatory powers.“The legislature had incidental and subsidiary powers with respect to a legislative entry, however the power to tax is neither incidental nor subsidiary to the power to legislate in a particular matter in the nature of a regulatory entry. Entry 50 List II is subordinated only to the extent that any limitation that may be imposed by the Parliament by law relating to mineral development.”The Court clarified that as per the limitation under Entry 50 List II, the state has full power to tax miner rights unless a Parliamentary Law on mineral development curtails it. However MMDR Act being legislation enacted by the Union on the subject of mineral development is absent of any express provision which curtails such powers of the States.“Unless Parliament imposes limitations, the plenary powers of the state to levy taxes on mineral rights are unaffected. Parliament can impose legislation under Entry 50 List II by means of statutory provisions, there is no specific provision in the MMDR Act which imposes limitations on the power of the state to tax mineral rights.”MMDR Act Does Not Restrict The State's Power To Tax Mineral RightsThe Court conclusively held that the scheme of the MMDR Act does not limit the state's mineral taxation powers under Entry 50 List II. Since the Court established that royalty under S.9 is not a tax on mineral rights, any limitations on increasing the rates of royalty by the...

Regular Entries In 7th Schedule Of Constitution Can't Be Given Wider Interpretation To Include Taxation Powers : Supreme Court

Anmol Kaur Bawa

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