States' Power To Tax Mineral Rights Eclipsed By Union Law On Mineral Development : Harish Salve In Supreme Court [Day 4]

The Supreme Court on Tuesday (March 5) resumed its 4th day of hearing the 9-judge constitution bench matter about royalties imposed on mining. The Court deliberated upon how royalty, in light of Entry 50 List II, was a species of the larger spectrum of 'tax'. Senior Advocate Harish Salve explained to the bench that while Entry 50 List II grants states the power to levy taxes on mineral rights, this authority can be eclipsed by legislation enacted by Parliament on mineral development under Entry 54 List I (Union's Powers on Mineral Development). The respondents suggested that laws governing mineral development, enacted by the Union, may supersede the state's ability to impose taxes on mineral rights, highlighting the primacy of central legislation in this domain.During the hearing, the CJI emphasised that once royalty is established for mineral rights, the state cannot demand anything beyond what has been provided, as it is then governed by Section 9. As per Section 9 of the MMDR Act of 1957 (Act of 1957), the mining lease holder, whether granted before or after the enactment of the Mines and Minerals (Regulation and Development) Amendment Act, 1972, is obligated to pay royalty for minerals removed or consumed from the leased area. The Second Schedule determines the rate of royalty, and this payment applies to both old and new mining leases. The Central Government holds the authority to amend the Second Schedule, adjusting royalty rates for minerals, with limitations on the frequency of such adjustments. As specified in the law, the royalty rate cannot be increased more than once in a three-year period. Senior Advocate Harish Salve, representing the Eastern Zone Mining Corporation, contended that Entry 50 is sui-generis, and the limitation on taxing power arises from the law of mineral development, not from legislation passed by Parliament.“Entry 50 List II is sui-generis and is not a limitation of your taxing power. The limitation flows from the law of mineral development, not from legislation made per se by the Parliament. And if the architecture of the law on mineral development makes it incompatible to have a tax on mineral rights then your power stands denuded. That's the real point.” Mr Salve asserted that if taxing mineral rights becomes incompatible with the law of mineral development, the state's power to impose tax stands denuded. Justice Nagarathna questioned whether the taxing power is entirely denuded, “That means the taxing power is not denuded as such” To which Mr Salve clarified that it is eclipsed by the law on mineral development. He implied that while the powers of the state remained untouched under Entry 50 List II which gives the state legislature the authority to make tax laws on mineral rights, the same get superseded in a situation where the Union makes laws on mineral development, the later getting a higher impetus of effectiveness. “ It is eclipsed by the law on mineral development” Justice Nagarathna then remarked, “ The laws on mineral development are not exhaustive yet, it is dynamic.” Mr Salve, agreeably submitted, “Yes of course, if tomorrow the law of 57 (MMDR Act 1957) is repealed your powers (state's) spring back in magnitude” The discussion dwelled deeper as the CJI posed a hypothetical scenario before Mr Salve: If there was no MMRD and MMDR Act and the state was to enact legislation on royalty, that legislation on royalty would be referrable to what entry? Salve promptly responded, pointing to Entry 23 List II (State's power regarding the regulation of mines and mineral development). The CJI then drew a connection, stating that if a state enacts royalty legislation under Entry 23, it would correspondingly be referred to Entry 54 List I. “Therefore once royalty legislation is referred to entry 23, then correspondingly legislation on royalty is referrable to entry 54. Once we accept that legislation on Royalty by the state would be referrable to Entry 23, the reason why the state cannot impose royalty is that law is referrable to Entry 54(of list 1).” The core argument presented by Mr Salve was the problem arising from Entry 50 in List II, which, according to him, limits the state's taxing power concerning Entry 54(of list 1). Salve emphasized that it's not a matter of conflicting taxing powers but rather that a law under Entry 54 supersedes the state's taxing right under Entry 50“The problem is, Entry 50 List II curtails the taxing power wrt to Entry 54. It is not a case of taxing power v. taxing power …the point here is that law under 54 eclipses your taxing right under 50.”For reference, Entry 54 of List 1 reads : 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 expedient in the public interest.Royalty as a Species of Exaction: Justice Nagarathna highlighted the multifaceted nature of imposts, exactions, and taxes on mineral rights, categorizing...

States' Power To Tax Mineral Rights Eclipsed By Union Law On Mineral Development : Harish Salve In Supreme Court [Day 4]

Anmol Kaur Bawa

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