States' Power To Tax Mining Rights & Mineral-Bearing Lands Not Limited By MMDR Act; Royalty Not Tax: Supreme Court Holds By 8 :1

The Supreme Court 9-judge constitution bench today held by an 8:1 majority that States have the power to levy tax on mineral rights and that the Union law - Mines and Minerals (Development and Regulation) Act 1957 - do not limit such power of the States.Chief Justice of India DY Chandrachud wrote the judgment on behalf of himself and seven colleagues. Justice BV Nagarathna delivered a dissenting judgment.The key questions that the court examined were (1) whether royalties on mining leases be considered as tax and (2) whether the States have the power to levy royalty/tax on mineral rights after the enactment of Parliamentary law Mines and Minerals (Development and Regulation) Act 1957.Conclusions of the Majority judgment :1. Royalty is not within the nature of a tax as it is a contractual consideration paid by the lesssee to the lessor under the mining lease. Both royalty and dead rent do not fulfil the characteristics of tax. The judgment in India Cement Ltd. v. State of Tamil Nadu (1990) 1 SCC 12 [34] holding royalty to be a tax is overruled. The payment made to the Government cannot be deemed to be a tax merely because the statute provides for the recovery of the arrears.2. Entry 54 of List 1(Union list) is a regulatory entry dealing with the regulation and development of mines and minerals. Regulatory entries are distinct from taxing entries. Entry 54 of List 1, being a general entry, does not include the power of taxation of the Union.3. The legislative power to tax mineral rights vests with the state legislatures. Parliament does not have the legislative competence o tax mineral rights under Entry 54 of List 1, it being a general entry. Since the power to tax mineral rights is enumerated in Entry 50 of List 2, Parliament cannot use its residuary power with respect to that subject matter.4. Entry 50 of List 2 envisages that the Parliament can impose any limitations on the legislative field of the States through a law relating to mineral development. The MMDR Act, as it stands, does not impose any such limitations.5. There is no specific provision in the MMDR Act imposing limitations on the taxing powers of the State. Royalty under S.9 of the MMDR Act is not in the nature of a tax. Section 9 MMDR Act does not impose any limitation on the power of States to tax minerals. The limitations imposed by S.9 on royalties do not amount to limitations on the State's powers.6. The expression "land" in Entry 49 of List 2 covers all sorts of land. Mineral-bearing lands also fall under the description of "land" under this Entry in the State list and hence States are competent to tax them.7. State legislatures have legislative competence under Article 246 read with Entry 49 of List 2 to tax land which comprise of mines and quarries. containing minerals.8. Yield of mineral-bearing land in terms of the quantity of minerals produced or royalty can be used as a measure to tax mineral-bearing lands. Mineral value or mineral produce can be used as a measure to levy tax on mineral-bearing lands.9. Entries 49 and 50 of List 1 deal with different subject matters and operate in different fields. Mineral value or mineral produce can be used as a measure to impose tax under Entry 49 of List 2.10. The limitations imposed by the Parliament in a law relating to mineral development with respect to Entry 50 of List 2 cannot operate on Entry 49 of List 2 because there is no specific stipulation in the Constitution to that effect.The decisions in India Cements, Orissa Cements, Mahanadi Coal Fields, Saurashtra Cement and P Kannadasan are overruled.Dissenting viewJustice Nagarthna, disagreeing with the majority, held that royalty is in the nature of a tax. Hence, the provisions of the MMDR Act regarding levy of royalty denude the States of their power to levy taxes on minerals.Justice Nagarathna further held that "land" under Entry 49, List 2 will not include "mineral bearing lands" as it would amount to double taxation on mineral rights. It would be impermissible to hold that the States have power to levy tax over and above the royalties paid by the lease-holder of the mining lease.Justice Nagarathna opined that allowing States to levy taxes on minerals would lead to a lack of uniformity on a national resource. This could also lead to unhealthy competition among the States. This may result in the breakdown of the federal system.Whether the judgment will apply prospectively? SC to hold hearing next weekAfter the judgment was pronounced, Solicitor General Tushar Mehta, Senior Advocates Arvind P Datar and AM Singhvi requested the Court to clarify that the judgment would operate only prospectively. Senior Advocate Rakesh Dwivedi opposed the demand.The bench agreed to hear the parties on this point next Wednesday.Issues addressed by the CourtThe batch of cases arose from various petitions filed against the laws made by States to impose taxes on mineral- bearing land in pursuance of Entry 49 of List II by applying the mineral value or royalty...

States' Power To Tax Mining Rights & Mineral-Bearing Lands Not Limited By MMDR Act; Royalty Not Tax: Supreme Court Holds By 8 :1

Anmol Kaur Bawa

States have the legislative competence to tax mineral-bearing lands, the Court held.

Tags