'States Have Few Areas Of Taxation, We Must Not Dilute Those' : Supreme Court Expresses Concerns About Diluting States' Tax Powers On Minerals [Day 3]

The 9-judge Constitution Bench of the Supreme Court, on its third day of hearing on Thursday (February 29) on the issue relating to royalty on minerals, deliberated whether the Parliament can completely denude the States of their power to levy taxes on mineral rights.A bench headed by Chief Justice of India DY Chandrachud and comprising Justices Hrishikesh Roy, Abhay Oka, BV Nagarathna, JB Pardiwala, Manoj Misra, Ujjal Bhuyan, SC Sharma and AG Masih is hearing the matter.Analysing the relevant entries under the Seventh Schedule of the Constitution, CJI Chandrachud remarked during the hearing, "Taxing power always remains with States in relation to minerals and it is never with the Union. The States have very few areas of taxation, most of taxing powers under the constitution are given to the Union, we must not dilute those areas.”The Court's deliberation revolved around Entry 50 List II, which grants states the power to levy taxes on mineral rights, but subjects it to limitations imposed by Parliament through laws related to mineral development. Justice Nagarathna analysed that if the State has to impose a tax on minerals, it shall first see whether there is a central law on mineral development. If there happens to be a limitation imposed by the Centre, that has to be looked into. She further placed reliance on the phrase 'subject to limitations imposed by the Parliament' as prescribed under Entry 50 List II. Entry 50 List II provides States with the authority to levy taxes on mineral rights within their territories, but it is subject to limitations that can be imposed by Parliament through laws related to mineral development. The limitations imposed by Parliament may influence the extent to which states can exercise their taxing powers concerning minerals.She added. “ In all these Entries, Entry 54 List I ( Union's Powers on regulation of mines and mineral development), Entry 23 List II (State's power regarding the regulation of mines and mineral development ) or Entry 50 List II, mineral development is common. It is actually a subject given to the Parliament in the interest of uniformity and development in the national/ public interest. So that should be the way the State should proceed before imposing any tax on mineral” Attorney General (AG) Mr R Venkataramani explained, “If you see Entry 50 alone (referring to the second phrase on limitations in Entry 50), it suggests that Parliament can make a law in the domain of mineral development.”Entry 50 List II states: 'Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development'Justice Hrishikesh Roy posed to the AG whether the Union of India (UOI) can enact a law preventing states from taxing mineral rights and about the potential impact it may have on state revenues and obligations.“We have here a situation where the State under List II has the power to impose taxes on mineral rights subject to what is there in List I Entry 54. Now can Union of India make a law that the State will not tax the minerals rights?”AG replied in the affirmative, “It can.”Justice Roy, expressing concern, highlighted the extremity of such a proposition and its impact on states, especially considering the vital role mineral-related revenues play for them. The bench underscored the delicate balance between federal and state powers in matters of taxation and resource management, bringing attention to the potential implications of overarching legislative measures.Justice Roy reverted, “See it's a very extreme thing…suppose such a law is made then what happens to one of the practical very scarce sources of revenue to be earned by the States. They are also expected to discharge certain obligations in the federal scheme”Acknowledging the concerns raised by Justice Roy, the AG stressed the importance of giving meaning to Entry 50 as intended by the Constitution makers, asserting that it is a fundamental part of the federal structure. “Shall we not give Entry 50 that meaning which the constitution makers intended to have? Let's move in point of time regarding mineral development…which is the key to look at 53 (Union's Power Regulating & Developing oilfields and mineral resources), 54 (Union's Power on regulation for Mineral development), 23 (State's Power regulating mineral development) and ultimately 50 List II and the court will keep that in mind.” State's Power to Make Tax Laws Cannot Be Diluted - The CJI Distinguishes Different Entries In The 7th Schedule Chief Justice of India, DY Chandrachud delved into the distinctions between Entries 23, 50 of List II and 54 of List I. Entry 23 List II : 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.Entry 54 of List I : Regulation of mines and mineral development to the extent to which such regulation and development under the control of the Union is declared by Parliament by law to be ...

'States Have Few Areas Of Taxation, We Must Not Dilute Those' : Supreme Court Expresses Concerns About Diluting States' Tax Powers On Minerals [Day 3]

Anmol Kaur Bawa

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