States' Power To Tax Minerals Not Traceable To Power To Tax Land: Harish Salve Before Supreme Court 9-Judge Bench [DAY 5]

The Supreme Court on Wednesday (March 6) continued hearing the 9- Judge Constitution Bench matter on Royalties imposed on mining. On its 5th day of hearing, the Court deliberated upon the significant questions regarding the taxation of land and mineral rights, challenging the distinction between Entry 49 and Entry 50 in List II of the Indian Constitution. Senior Advocate Harish Salve, appearing for Eastern Zone Mining Corporation, shed light on the unique nature of mineral rights and their separation from land for taxation purposes. He questioned the validity of considering something legally removed from the land, like mineral rights, as a measure for taxing the land. The respondent's argument centered on the impracticality of linking the value of legally distinct entities, such as mineral rights or machinery, to the value of the land for taxation.Senior Advocate Harish Salve posed a crucial question, challenging the distinction between taxes on land and mineral rights. He pointed out the divergence between Entry 49 List II, which deals with taxes on land and buildings, and Entry 50 List II, specifically addressing taxes on mineral rights. Salve emphasized the need to recognize the unique nature of mineral rights and questioned their separation from the broader category of land for taxation purposes.The point of discussion was whether the State's power to tax minerals can be traced to Entry 49, List II(taxes on land and buildings) instead of Entry 50 List II (Taxes on mineral rights subject to any limitations imposed by Parliament by law relating to mineral development.)“ If something is not a part of land how can it be a measure on tax on land? Tax on machines (used on land), the value on machines, can you add to the value of the land for exaction? You cannot.” Salve delved into the intricacies of taxation, arguing that if something is legally removed from the land, such as mineral rights, it cannot serve as a measure for taxing the land. CJI DY Chandrachud taking note of the same, asserted that the challenge to the validity of a measure in taxation is less strict than challenging the validity of the levy itself. It was remarked by the CJI that, “Challenge to the validity of a measure as opposed to challenge to validity of a levy , the test is not as strict so long as the measure so long as the measure has some broad nexus to the character of the levy it is sustained”Mr Salve agreeably explained, “ Correct, here I am saying the character on levy is on the land, anything which has a nexus with land but something which has been removed from the land (legally in concept), how can it provide you a measure? Your Lordships has dealt with it - machinary fixed on land”The Chief Justice weighed in, explaining that Entry 49 allows for a wide legislative discretion in choosing measures as long as there is a broad nexus to the character of the levy. “Entry 49, when it speaks on tax on land, it refers to levy, so long as the levy is on the land as a unit. The legislature has a wide discretion to choose amongst the various alternatives for determining the measure for which the levy can be put, in so far as the measure, that measure may not be in a constitutional sense, so far it has a nexus.”Salve countered, arguing that mineral rights, as a separate legal class, lack a natural nexus to the value of the land. Drawing parallels, he highlighted the impracticality of adding the value of machinery, legally distinct from the land, to the land's value for taxation purposes. “ When mineral rights are legally a class apart, they are no part of the land, how do they then have a nexus to the value of the land? That's the point. If I use land for parking aircrafts, can you say that the cost of the aircraft will be my measure for taxing the land? You cannot. You can say that the rate you are getting for parking the aircraft, that you can take..but can you say I'll add the value of the aircraft to the value of the land? You cannot.” The Missing Nexus Between Entry 49 & 50 Of List II : Mr Salve Asserts 'Decoupling' Land And Mineral TaxDuring the hearing, Mr Salve raised a crucial argument, asserting the absence of a necessary legal nexus between taxation and mineral ownership. He highlighted the disconnect between being the landowner with no rights to the minerals beneath and vice versa. According to Mr Salve, if the state owns the minerals and individuals own the land, the imposition of taxes solely on the land lacks a justifiable basis.“The necessary legal nexus is missing. If I am right in the first part of my argument that there is a decouple (between Entry 49 and 50) .. I am the owner of the land and I have zero right to the mineral and the owner of the mineral has zero right to my land. The state owns the mineral, I own the land …you are telling I'll tax you on the land, on what basis?” The Chief Justice responded, suggesting that Entry 49 and Entry 50 grant complete and exclusive jurisdiction to the state for taxing land and ...

States' Power To Tax Minerals Not Traceable To Power To Tax Land: Harish Salve Before Supreme Court 9-Judge Bench [DAY 5]

Anmol Kaur Bawa

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